In the Swing of Things

Samsung Electronics posts whopping Q1 operating profit; Chmn. Lee orders chip plant expansion

Samsung Electronics Co. posted a record Q1 operating profit of 4.3 trillion won, the largest in its history, up 628.8 percent YoY, according to preliminary figures of the company’s consolidated financial records, eclipsing the 4.23 trillion won in operating profits set in Q3 last year based on the international financial reporting standards (IFRS), the company said recently. Chairman Lee Kun-hee ordered the construction of new chip plants to meet increased demand as the current production facilities are unable to meet them.
The Q1 sales amounted to 34 trillion won on a consolidated basis, up 18.6 percent YoY and securities analysts agree that chips and LCDs led the surprising performance records as they came during the period considered off-season for various electronics products that the company produces and markets around the world.
The company had been unable to meet the demand for semiconductor chips due to a recent shortage, and the resultant increase in chip prices boosted operating profit in the sector to 2 trillion won alone, close to the entire operating profit that the company made last year. In the LCD sector, too, its sales went so well that operating profit came to 500 billion won. The superb performance is likely to continue in Q2 as well, again led by chips and LCDs with the sales of LED TVs and touch screen phones rising rapidly in the period. Securities analysts are very sure that LED TVs and cell phones would also join with chips and LCDs to set excellent records for the company in Q2 also.
If the Q1 record is any guide, the company is likely to record 16 trillion won in operating profit for the whole of this year, up 50 percent on sales of 156.95 trillion won, and 15 percent YoY, both the largest in the company’s history, according to the operation guidance for 2010 released by the company on April 6.
Business sources said Samsung Electronics was able to set such an enviable record in the first quarter, not just from price increases in some of its leading products, but because the company was well prepared for recording such a surprising record even during the off-season.
The company introduced premium-brand products such as LED TVs and smartphones following the sluggish season last year, along with the restructuring of its units to produce new products and for more intensive marketing. It also continued to make new investments in such product facilities as chips and LEDs, to be ready for the peak season, and will make cost-cuts in all aspects of the company’s operation to make products more competitive and create equilibrium in all product sectors.
The economic recovery in major market countries for Samsung Electronics products led by chips experienced supply shortages, especially memory chips. The prices of D-RAM chips, in particular, have either risen or stayed the same despite the off-season. The prices of DDR3 1-gigabyte chips supplied to Hewlett Packard and Dell rose to $2.50 per chip compared to $1 per chip a year ago.
A securities analyst said on-the-spot prices of DDR3 amounted to $3 per chip and it will likely continue in Q2 and Q3. He is sure that half of the company’s operating profit this year would come from the chip sector. The company’s continued investments in the chip sector, amounting to 4 trillion won, and 3 trillion won in the LCD sector enabled the company to make such huge profits. The company is likely to invest 5.5 trillion won in chip facilities and 3 trillion won in LCD facilities this year, too. The company will dedicate its 17 production-line chip plant in Hwasung, Gyeonggi Province, next month with Chairman Lee leading the ceremony.
The company also enhanced the competitive power of its other products, in particular, by introducing LED TVs in March last year, which has a better picture quality and needs less power to run than LCD TV, although it is 30 percent more expensive, and followed it up with 3D TV under its strategy to tackle the premium electronic product market.
TV sets sold well throughout Q1, backed up by the company’s restructuring for the coming upturn in the market. The company merged some of its similar units at the end of last year, leaving only seven business units and the headquarters office. nw