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Samsung q2'15 commentary intro

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Samsung Electronics reported another quarter of declining YoY revenue and profits, largely driven by weakness in its mobile division. The new Galaxy S6 appears to have had little impact in its battle against Apple, and had even less effect on the major Chinese vendors. Both Huawei and Xiaomi achieved strong growth, while Samsung's smartphone business saw both revenue and unit declines. Meanwhile the shift in focus back towards its B-to-B and OEM divisions - Semi-Conductors and Displays - is accelerating.

Here once again is an introduction to the popular detailed summary of Samsung's results, analysing and commenting on all the major metrics, and considering the key questions facing Samsung in the coming months. (Not all the colours have successfully uploaded).

If you would like access to the full and detailed slides, with all the correct colours, drop me an email at nick@aquilla-europe.com

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Samsung q2'15 commentary intro

  1. 1. Aquilla Results Q2 2015 Summary and Commentary (Based on Samsung Electronics’ un-audited earnings release of 30th July 2015) Note: Samsung Q2 = Calendar Q2 The following slides are in USD, converted from the KRW results using quarter-end exchange rates. This provides the most relevant comparisons with global technology companies. (Samsung has not yet released its Dollarised results, which when available may vary depending on the mix of exchange rates and currency hedges employed by the company) These data are derived from results published by Samsung Electronics Co Ltd, from the published results of other companies, and from assorted independent analysts, as identified in the slides. The opinions are those of the author, and should in no way be interpreted as investment advice.
  2. 2. Aquilla 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 68% of the revenue and all of the Net Income of Samsung Group •This report focuses entirely on Samsung Electronics
  3. 3. Aquilla Source: Samsung Electronics Results Quarterly Revenue and YoY Growth Continuing Decline •Another challenging quarter, with YoY decline of 16% in USD terms, though rather more encouraging in local currency, being only 7% down •Set against Apple’s equivalent quarter Samsung Electronics reported sales 13% lower, and its Mobile division 53% less than Apple’s sales •Most worryingly, the momentum delivered by the Galaxy S6 appears to have been muted, and to have made little impact on the older iPhone 6 Comparative Revenues CQ2 2015 Apple Microsoft Google -30% -15% 0% 15% 30% 45% 60% 75% 90% 0 10 20 30 40 50 60 70 80 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 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Growth (%) Revenue (B$) Samsung Electronics Revenue Revenue B$ Revenue YoY Growth
  4. 4. Aquilla Source: Samsung Electronics Results Divisional Profitability Mobile Supplanted by Semi •The Semi-conductor Division continues to grow its share of Operating Profit, contributing 49% in Q2 •IM lagged again, dropping to a 40% share, despite this being the launch quarter for the S6 •DP contributed 8% and CE 3%, back into profit after a loss-making Q1 •These figures suggest the conflict between Samsung as OEM supplier through its Semi-conductor division, versus device vendor through IM continues to swing towards the OEM business •The 14nm fab plant will prove increasingly influential - it has already regained Apple as a customer, suggesting that Semi will show even stronger results in Q3 and Q4 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 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 Q1 '15 Q2 '15 Q3 '15 Q4 '15 B$ Divisional Operating Profit Semi%Opera*ng%Profit%B$% DP%Opera*ng%Profit%B$% CE%Opera*ng%Profit%B$% IM%Opera*ng%Profit%B$%
  5. 5. Aquilla Source: Samsung Electronics Results Research & Development Strong R&D Investment •Samsung’s investment in R&D fell back sharply in Q2, by almost $500m, to 6.9% of revenues •This is more in line with the long term trend rate, and suggests some belt- tightening in the company •This remains around twice that of Apple, both as a percentage of revenue and in dollar terms •Samsung remains a modest R&D spender by comparison with some other major tech companies R&D $ R&D % Apple $ 1.5 B 3.3% Samsung $ 3.8 B 7.4% Microsoft $ 2.6 B 12.0% Google $ 2.5 B 14.9% Intel $ 2.9 B 20.6% R&D Spend (Avg/Qtr 2014, % of Rev) 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 0 1,000 2,000 3,000 4,000 5,000 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 Q1 '15 Q2 '15 Q3 '15 Q4 '15 R&D vs Rev (%) R&D Spend (M$) Samsung Electronics Research & Development R&D M$ R&D % of 12m Trailing Rev
  6. 6. Aquilla Tablet Units - Peaked? Source: Gartner, IDC and others 0 20,000 40,000 60,000 80,000 0 5,000 10,000 15,000 20,000 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 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Trailing 12m Units (000s) Q Units (000s) Tablet Units Tablets kU Tablets Trailing 12m kU Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and gives a better indication of the longer term trends
  7. 7. Aquilla Source: Samsung Electronics Results Regional Splits (Q1) Red Ink Everywhere •More sharp declines were reported in every region - 15% overall Home Market Drops •South Korea declined 12%, with Apple a major beneficiary America Turns •The Americas saw a third quarter of decline, but still remains Samsung’s largest region Europe Fades Badly •Europe has declined every quarter since Q3 2013 and has now dropped below 20% of the mix Asia/Africa Steady •Asia/Africa region posted the smallest decline, with India becoming a key target for Samsung China Worrying •A further 29% decline in China is most worrying of all, slipping to 15% of the mix. For comparison it is 29% of Apple’s business Most recent Share YoY 11% -12% 32% -6% 19% -25% 23% -4% 15% -29%China Asia/Africa Europe Americas South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 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 Q1 '15 Regional Splits ($) Note: Q1 Regional Breakdowns not yet available from Samsung - commentary relates to Q1
  8. 8. Aquilla Source: Samsung Electronics Results Competitive Landscape - Tablets Samsung second in declining market •With the tablet market showing another 7% decline, Samsung remains one of only two double-digit vendors in the mix, with Apple still top •Signs of stabilisation are potentially visible, but the major winners are likely to be the white box vendors, and potentially Microsoft (from a small base) •Windows 10 may yet trigger a revival in tablets, especially as many X86 tablets are subsidised by Intel, and the likes of Lenovo can leverage its strong enterprise presence Source: IDCSource: IDC Q2’15 M Q2’15% Q2’14 M Q2’14% Change Apple 10.9 24.5% 13.3 27.7% -17.9% Samsung 7.6 17.0% 8.6 18.0% -12.0% Lenovo 2.5 5.7% 2.4 4.9% 6.8% Huawei* 1.6 3.7% 0.8 1.7% 103.6% LG Electronics* 1.6 3.6% 0.5 1.0% 246.4% Others 20.4 45.6% 22.4 46.7% -9.3% Total 44.7 100.0% 48.0 100.0% -7.0% Q2 2015 Tablet Units (IDC) (Huawei/LG a statistical tie)
  9. 9. Aquilla Samsung’s Q2 Results Analysis - Full Slide Deck
  10. 10. Aquilla Samsung’s Q2 2015 Audited Results Analysis These popular slides cover an in-depth analysis of Samsung’s Q2 results The slides shown are an introduction To receive the full set, including charts, commentary, interpretation and outlook plus all slides in full colour contact Aquilla Europe nick@aquilla-europe.com
  11. 11. Aquilla Nick Graves, CEO • nick@aquilla-europe.com • +44 780 225 6536 Aquilla Europe Ltd • Kennett Cottage • OX9 3QS • UK • www.aquilla-europe.com

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