Turnaround at Samsung Electronics

Chips and LCD panels help to achieve 4.1 tln won in Q3 operating profit, the largest since 2007

Samsung Electronics Co. set a record in quarterly operating profit in the third quarter estimated at 4.1 trillion won on a consolidated basis, the company said recently. It is the first time since 2007 that the company’s quarterly operating profit exceeded 4 trillion won, the company said, adding that the company began to announce its income statement on a global basis in 2007.
The company’s sales in the quarter came in at 36 trillion won, far surpassing the 32 trillion won in the preceding quarter. The company said the figures represent the average between the company’s minimum and maximum estimates for sales of between 35 trillion won and 37 trillion won and operating profit between 3.9 trillion won and 4.3 trillion won.
Therefore, the actual figures to be made public on Oct. 30 could be much larger than the estimated figures announced by the company, they said.
Business sources said Samsung Electronics’ earning surprise has been attributed to the upsurge in the performance of its semiconductor and LCD sectors.
The two sectors made more than 1 trillion won each in operating profit with the chip sector recording the figure for the first time since Q4 of 2006 (1.66 trillion won) and the LCD sector reporting more than 1 trillion won in operating profit for the first time since Q4 of last year, rebounding from a 310 billion won deficit in Q1 of this year and a dismal result of 150 billion won in Q2 operating profit.
The business sources said the credit for such a record performance should go to Vice Chairman Lee Yoon-woo in charge of the DS parts sector, President Kwon Oh-hyun of the semiconductor sector and President Chang Won-ki of the LCD sector, who make up management of the parts sector of the company. They were given credit for the development of next-generation parts and marketing them in overseas markets, beating their rivals to the punch.
Vice Chmn. Lee even moved his office to the company’s Kihung plant just outside of Seoul to direct the DS parts for the LCD and DMC sectors centered around hand phones and TVs. Vice Chmn. Lee and Pres. Kwon collaborated together to set up the strategies to revive the sector’s dismal operation.
They decided to change the primary chips produced to DDR3, which are faster than DDR2 in processing information by 40 to 50 percent and, therefore, can be sold at higher prices. The strategy worked with major computer makers buying the DDR3 drive in time for Microsoft to introduce its new software, Windows 7. Hynix Semiconductor is the only chipmaker in the country other than Samsung that can produce DDR3, which is why the DDR3 chip is sold at higher prices.
At the same time, the prices of D-Ram chips rose substantially this year ― $1.56 per chip now as compared to $0.80 cents per chip at the beginning of the year. Samsung Electronics was helped by the situation and was able to set a new record in quarterly operating profit.
Pres. Chang, in charge of the LCD sector, gets huge credit for leading the sector to a record-breaking 1 trillion won in quarterly operating profit. Vice Chmn. Lee gave Pres. Chang free reign in running the sector, as he has been with the sector ever since he joined Samsung in 1981. He turned his eyes to China’s electronic product market as the Chinese government decided to subsidize buyers of LCD TV sets as part of its stimulus package to revive the economy.
Samsung did not have much of a base to operate in China since many Chinese TV makers got LCD panels from Taiwan. Chang sent Samsung sales people to every large electronic exhibition held in China to pitch for Samsung’s panels and succeeded in persuading a number of local LCD TV makers to use Samsung LCD panels for a change. The move paid off with a 10-fold increase in the sale of LCD panels in China, rising to 650,000 panels from 65,000.
What helped the company was a rapidly increasing demand for LCD panels, creating a sellers market, bringing LCD TV and monitor makers scrambling to Samsung for LCD panels. The company expects the situation is likely to persist until at least early next year with Samsung having an edge in production costs.
They expect Samsung to continue to lead the world in the chip and LCD panel sectors for some time to come. nw

A building in Samsung Town in southern Seoul, where many Samsung companies are located including Samsung Electronics.