Samsung q3'14 commentary introduction updated

Samsung Electronics Results
Q3 2014
Summary and Commentary
(Updated with Samsung’s full accounts release data)
Note: Samsung Q3 = Calendar Q3
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Samsung Electronics
•Samsung Electronics is the largest company within the
Samsung Group, a “Chaebol” conglomerate based in
the town of Samsung, in South Korea.
•Samsung Electronics comprises three main divisions,
one of which is usually reported in two parts. These are:
•Device Solutions, which includes:
•The Semi-conductor Division, abbreviated to “Semi”
•and the Display Panel Division, abbreviated to “DP”
•Consumer Electronics Division, abbreviated to “CE”
•IT & Mobile Communications Division, abbreviated to
“IM”. This includes the smartphone and tablet business.
•In 2013, Samsung Electronics accounted for 64% of the
revenue and 92% of the Net Income of Samsung Group
•This report focuses entirely on Samsung Electronics

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Key Data Points
Q3 ’14 (₩) Q3 ’14 ($) Q2 ’14 (₩) Q3 ’13 (₩) YoY ₩
Revenue 47.4 T₩ 45.2 B$ 52.4 T₩ 59.1 T₩ - 20%
Net Income 4.2 T₩ 4.0 B$ 6.3 T₩ 8.2 T₩ -49%
Semi-Conductor Div Sales 9.9 T₩ 9.4 B$ 9.8 T₩ 9.7 T₩ + 2%
DP Division Sales (Display) 6.3 T₩ 6.0 B$ 6.3 T₩ 8.1 T₩ - 23%
CE Division Sales (CE) 11.6 T₩ 11.0 B$ 13.0 T₩ 12.0 T₩ - 4%
IM Division Sales (Mobile) 24.6 T₩ 23.4 B$ 28.5 T₩ 36.6 T₩ - 33%
Smartphone Sales (IDC) Units 78.1 M 74.3 M 80.4 M - 3%
Tablet Sales (IDC) Units 9.9 M 8.5 M 9.7 M + 2%
Note: USD Figures are as reported by Samsung Electronics Source: Samsung Electronics Results, IDC

Semi-conductor Revenue
DP Revenue
(Display)
CE Revenue
(Consumer Electronics)
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Source: Samsung Electronics Results
Revenue Mix by Division
Mobile Revolution
•The mobile takeover of
Samsung Electronic’s
business was startling:
from 20% to 50% inside
4 years
•However the
honeymoon may be
over, as the IM business
saw consecutive sharp
declines, most recently
of 31%
•The Semi-conductor
business has
compensated slightly,
with growth of 4%
•The Display business
also declined sharply,
perhaps suffering from
OEMs switching to non-competitive
suppliers
•CE has remained stable
for three years now as
smart TVs and other
product lines
compensate for overall
price declines
Most recent
Share YoY
19% 4%
12% -21%
22% -1%
IM Revenue 47% -31%
(Mobile)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Q1
'10
Q2
'10
Q3
'10
Q4
'10
Q1
'11
Q2
'11
Q3
'11
Q4
'11
Q1
'12
Q2
'12
Q3
'12
Q4
'12
Q1
'13
Q2
'13
Q3
'13
Q4
'13
Q1
'14
Q2
'14
Q3
'14
Divisional Revenue Mix

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27%
24%
21%
18%
15%
12%
9%
6%
3%
Net Profit
Net Profit Declines
•Net Profit declined
again to $4.0B, and to
9% of revenues,
disappointing (but not
surprising) the market
•The core reason remains
under performing
smartphone sales due to
increasing competition,
especially from China
•Signs of panic appeared
in rumours of multiple
executive changes in
the IM division
•Samsung is consistently
behind Apple in
profitability, whose net
profitability is now
some 11% higher at
20% of sales
•There were few
currency effects, as the
Korean Won
strengthened a mere 2%
against the USD from
Q3 2013.
Comparative
Net Income
CQ3 2014
Google
Apple
Microsoft
0%
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Q1
'10
Q2
'10
Q3
'10
Q4
'10
Q1
'11
Q2
'11
Q3
'11
Q4
'11
Q1
'12
Q2
'12
Q3
'12
Q4
'12
Q1
'13
Q2
'13
Q3
'13
Q4
'13
Q1
'14
Q2
'14
Q3
'14
Q4
'14
Net Profit
(%)
Net Profit
(B$)
Samsung Electronics Net Profit
Net Profit B$ Net Profit %

Tablet Units - Peaked? Tracking the trailing 12 months (current and 3
Tablet Units
Tablets kU Tablets Trailing 12m kU
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previous Quarters) eliminates seasonality, and
gives a better indication of the longer term trends
80,000
65,000
50,000
35,000
20,000
5,000
-10,000
Source: Gartner, IDC and others
20,000
15,000
10,000
5,000
0
Q1
'10
Q2
'10
Q3
'10
Q4
'10
Q1
'11
Q2
'11
Q3
'11
Q4
'11
Q1
'12
Q2
'12
Q3
'12
Q4
'12
Q1
'13
Q2
'13
Q3
'13
Q4
'13
Q1
'14
Q2
'14
Q3
'14
Q4
'14
Trailing 12m
Q Units Units (000s)
(000s)

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8%
7%
6%
5%
4%
3%
2%
1%
Marketing Spend (to Q2 ’14)
Heavy Spend - Desperation?
•Much of Samsung’s success in
smartphones, particularly in the US
and Europe, was attributed to massive
spend on advertising and sales
promotion. Peaking at $3.8B in Q4
2012, the spend was clearly high
•Samsung almost matched this in Q2,
but reduced spend sharply in Q3, to
$2.7B
•The company had stated in its Q2
results call that Q3 will see a much
lower marketing spend - while there
was a drop, it was not as large as
expected
•Amidst slowing revenues this still
represented 6% of sales, a major
commitment
•Of this Sales Promotion was 70%,
suggesting some desperation to keep
sales moving
•Samsung will also be challenged to
match the powerful viral marketing
success of Xiaomi in China, without
the core product differentials that
Apple brings
Tracking the trailing 12 months (current and 3
previous Quarters) eliminates seasonality, and
gives a better indication of the longer term trends
0%
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Q1
'10
Q2
'10
Q3
'10
Q4
'10
Q1
'11
Q2
'11
Q3
'11
Q4
'11
Q1
'12
Q2
'12
Q3
'12
Q4
'12
Q1
'13
Q2
'13
Q3
'13
Q4
'13
Q1
'14
Q2
'14
Q3
'14
Q4
'14
Percent
of Rev
T 12m
Marketing
(M$)
Samsung Electronics Marketing Spend
Advertising M$ Sales Promotion M$ Percentage of Revenue Trailing 12m

Samsung’s Q3 Results Analysis - Full Slide Deck
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Samsung’s Q3 Results Analysis
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Samsung q3'14 commentary introduction updated