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Samsung q2'16 commentary reduct

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These popular slides cover an in-depth analysis of Samsung's important Q2 2016 results
The slides shown are a subset
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Samsung q2'16 commentary reduct

  1. 1. Aquilla Results Q2 2016 Summary and Commentary (Based on Samsung Electronics’ un-audited earnings release of 27th July 2016) Note: Samsung Q2 = Calendar Q2 The following slides are in USD, converted from the KRW results using quarter-end spot 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 Key Data Points Q2 ’16 (₩) Q2 ’16 ($) Q1 ’16 (₩) Q2 ’15 (₩) YoY ₩ YoY $ Revenue 50.9 T₩ 45.4 B$ 49.8 T₩ 48.5 T₩ + 6% + 3% Net Profit 5.6 T₩ 5.2 B$ 5.3 T₩ 5.8 T₩ + 13% + 0% Diluted EPS TBA TBA 36.4 k₩ 37.8 k₩ Semi-Conductor Div Sales 12.0 T₩ 10.7 B$ 11.1 T₩ 11.3 T₩ + 9% + 4% DP Division Sales (Display) 6.4 T₩ 5.7 B$ 6.0 T₩ 6.6 T₩ -12% -5% CE Division Sales (CE) 11.6 T₩ 10.3 B$ 10.6 T₩ 11.2 T₩ + 4% + 1% IM Division Sales (Mobile) 26.6 T₩ 23.7 B$ 27.6 T₩ 26.1 T₩ + 7% 0% Smartphone Sales (IDC) Units 77.0 M 81.9 M 73.0 M + 5% Tablet Sales (IDC) Units 6.0 M 6.0 M 7.6 M - 21% Source: Samsung Electronics Results, IDCNote: USD Figures where not reported by Samsung are converted at the same effective rate as Samsung’s reported RevenuesNote: USD Figures where not reported by Samsung are converted at the same effective rate as Samsung’s reported revenuesNote: USD Figures where not reported by Samsung are converted using reported exchange rates
  4. 4. Aquilla Source: Samsung Electronics Results Quarterly Revenue and YoY Growth Growing Again •A second quarter of growth suggests a real turnaround, and a gain of 3% in USD •Samsung Electronics USD revenues were just passed Apple’s, though Mobile sales value remains around half of Apple’s •The momentum appears to have been triggered by strong sales of OLED panels for mobile and high end TVs, plus the Galaxy S7, which has been well received Comparative Revenues CQ2 2016 -30% -15% 0% 15% 30% 45% 60% 75% 90% 0 10 20 30 40 50 60 70 80 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 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Growth (%) Revenue (B$) Samsung Electronics Revenue Revenue B$ Revenue YoY Growth Apple Microsoft Alphabet
  5. 5. Aquilla Source: Samsung Electronics Results Net Profit and YoY Profit Growth Apple$18.4B Net Profit Recovers •Net Profit returned to growth again •IM was the leading driver of this, with Operating Profit gaining by 53%, and delivering over half the profits •Semi declined, but still accounted for 32% •DP profit crashed by 75% due to problems in its LCD business •Samsung’s net profit grew to about two thirds that of Apple Comparative Net Income CQ1 2016 Alphabet Microsoft -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% 140% 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Net Profit Growth Net Profit (B$) Samsung Electronics Net Profit Growth Net Profit B$ Net Profit YoY Growth
  6. 6. Aquilla Source: Samsung Electronics Results Divisional Profitability Semi, IM Gain •Healthy profitability across most divisions were led by Semi, with good mix and gains in DRAM and NAND. Although Semi declined YoY, it still returned the best margins of around 24% •IM leapt in contribution again, delivering 53% of the operating profit for the group. This was largely due to improved product mix from strong sales of the Galaxy S7, with the higher margin S7 Edge taking more than 50% of the mix •DP crashed, declining 75% in profit, and slipping to only 2% of the profit for the company, and a 2% margin •CE remained profitable thanks to strong sales of UHD and curved screened TVs, and a 9% margin was a marked improvement •IM’s return to deliver 53% of the profit is hugely welcome for Samsung -2.0 0.0 2.0 4.0 6.0 8.0 10.0 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 Q1 '16 Q2 '16 Q3 '16 Q4 '16 B$ Divisional Operating Profit Semi Opera*ng Profit B$ DP Opera*ng Profit B$ CE Opera*ng Profit B$ IM Opera*ng Profit B$
  7. 7. Aquilla Source: Samsung Electronics Results Divisional Profit Margins CE, IM Up Sharply •This chart clearly shows Samsung’s dependence on Semi-conductor for margins, and Mobile for profit, while the CE and DP divisions bump along the bottom •Both CE and IM ticked sharply up - no doubt there is some correlation between both of these and the S7 success •It is worth noting however that while Apple, as a largely mobile business, can return gross margins of close to 40%, and operating margins of around 30%, Samsung is forced to run a much tighter ship -10% 0% 10% 20% 30% 40% 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 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Divisional Operating Profit Margins Semi $ Opera+ng Profit Margin DP $ Opera+ng Profit Margin CE $ Opera+ng Profit Margin IM $ Opera+ng Profit Margin
  8. 8. Aquilla Source: Samsung Electronics Results Diluted EPS, Gross & Net Margins Margins Jump Back •EPS will not be reported until the audited results are released •Gross Margin and Net Profit both ticked up in line with the overall business •Net profitability is around 7 points lower than that of Apple •While the businesses have some similarities, there are enough differences (in particular the non-IM divisions) to prevent too many conclusions from being drawn •However one might expect greater benefits from the synergy and vertical integration between the divisions 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 0.00 10.00 20.00 30.00 40.00 50.00 60.00 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 MarginsDiluted EPS ($) Samsung Electronics EPS and Margins Diluted EPS $ Gross Margin % Net Profit %
  9. 9. Aquilla Source: Samsung Electronics Results Samsung Share Price Recovering Again •Samsung share price drifted through the first part of the year, with a nadir of ₩ 1,050k in late August, before recovering through the second part of the year •The past three months have seen a steady climb back to ₩ 1,425k at the end of June •This still leaves the stock short of its all time high of ₩ 1,580k in January 2013 Source: Samsung Share Price - 12 months Share Price Past Three Months Mkt Cap Rank Apple $ 562 B 1 Alphabet (Google) $ 519 B 2 Microsoft $ 442 B 3 Exxon Mobil $ 374 B 4 Facebook $ 353 B 5 Amazon $ 348 B 6 China Mobile $ 258 B 10 Toyota $ 185 B 25 Samsung Elctrncs $ 160 B 30 IBM $ 155 B 35 Market Caps 29 July 2016
  10. 10. Aquilla Source: Samsung Electronics Results Research & Development R&D Investment Cut •Samsung’s investment was $3.1B in R&D in Q1, flat on Q4, and equated to 6.9% of revenues •This level of investment at the lower end of historicals, most likely reflecting rationalisation and cost savings in Korea •This remains higher than Apple’s CQ2 spend of $2.5B, though the trajectories look set to cross •Samsung remains a modest R&D spender by comparison with some other major tech companies R&D $ R&D % Apple $ 2.0 B 4.1% Microsoft $ 3.0 B 12.9% Google $ 3.1 B 16.4% Intel $ 3.0 B 21.9% R&D Spend (Avg/Qtr 2015, % 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 '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 Q1 '16 Q2 '16 Q3 '16 Q4 '16 R&D vs Rev (%) R&D Spend (M$) Samsung Electronics Research & Development R&D M$ R&D % of 12m Trailing Rev
  11. 11. Aquilla Source: Samsung Electronics Results Inventory Inventories Jumped Back Up •Inventory levels stabilised after the Q4 “inventory adjustment” in mobile •Post the S7 launch there appears to have been little change, suggesting a good balance, though the level is still around 32 days •This contrasts dramatically with Apple, who carried only 4.1 days of stock at the end of the same quarter •This level of inventory is a huge overhang for a technology company and is likely still to be playing on Samsung’s mind, especially if it continues to seek to emulate Apple 0 10 20 30 40 50 0.0 5.0 10.0 15.0 20.0 25.0 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 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Days of Stock Inventory (M$) Samsung Electronics Inventory Inventory B$ Days of Stock
  12. 12. Aquilla Source: Samsung Electronics Results Mobile Product Lines Mix Remains Stable •Samsung does not report product line sales, so this chart is based on analyst data - for Feature Phones this is particularly thin, so should not be taken as being precise •Despite the strong IM quarter, Samsung appears to have declined in overall smartphone shipments YoY •This was enough to retain overall market share at around 22.4% market share, and to retain the #1 ranking globally for Samsung •The feature phone business most likely dropped again, though a relaunch of Tizen may reverse this in the future •Upcoming Galaxy C specific to China is designed to restore success in this market •Meanwhile tablets fell back a further 25% YoY, in a market that saw declines of 12% overall (IDC). They have never threatened smartphones as a product line Source: Counterpint, IDC, and others 0 20,000 40,000 60,000 80,000 100,000 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 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Unit Sales (000's) Mobile Product Line Growth Feature Phones kU Smartphones kU Tablets kU
  13. 13. Aquilla Smartphones vs iPhone Source: Apple Results, Gartner, IDC and others Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and gives a better indication of the longer term trends 0 80,000 160,000 240,000 320,000 400,000 0 20,000 40,000 60,000 80,000 100,000 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 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Trailing 12m Units (000s) Q Units (000s) Smartphone Units vs iPhone Smartphones kU Smartphones Trailing 12m kU Apple iPhones Trailing 12m kU
  14. 14. Aquilla Tablet vs iPad: Still Behind Source: Apple Results, Gartner, IDC and others Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and gives a better indication of the longer term trends 0 20,000 40,000 60,000 80,000 0 5,000 10,000 15,000 20,000 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 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Trailing 12m Units (000s) Q Units (000s) Tablet Units vs iPad Tablets kU Tablets Trailing 12m kU Apple iPads Trailing 12m kU
  15. 15. Aquilla Source: Samsung Electronics Results Regional Revenue Trends Most Markets Steady •America has been the Samsung success story, and its decline was an indication of the challenges facing the company. Some signs of stability now •Europe, and most worryingly China, have been heading downwards, but seem to have stabilised a little •China, the world’s largest smartphone market, remains a challenge, as Samsung is buffeted by lower-cost and increasingly high-profile Chinese brands such as Huawei, Xiaomi and Lenovo •Asia/Africa was touted as a potential winner, with India an increasing hope for the company, where it leads with the Z family of Tizen-based phones. However the trend is not encouraging •Even in its home market, South Korea, Samsung remains stagnant, with apparent inexorable decline Note: Q2 Regional Breakdowns not yet available from Samsung - commentary relates to Q1 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 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 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Trailing 12m (B$) Regional Revenue Growth Trailing 12 Months South Korea 12m Trailing B$ America 12m Trailing B$ Europe 12m Trailing B$ Asia/Africa 12m Trailing B$ China 12m Trailing B$
  16. 16. Aquilla Source: Samsung Electronics Results Competitive Landscape - Smartphones Samsung Remains Top, but Chinese Brands Win Big •IDC sees Samsung retaining the top global slot in CQ2, with growth ahead of the market, and Apple, but below the three Chinese leaders •Apple’s decline is clearly visible, declining 15 points more than the market •Huawei continues to gain, though slowing, but holds a clear #3 rank •OPPO and vivo, both domestic Chinese brands, continued to advance strongly, and started to branch out into Asia •With the overall market flat the undifferentiated Android space could get brutal, as it already has for HTC, ZTE and even Xiaomi Source: IDCSource: IDC Q2’16 M Q2’16% Q2’15 M Q2’15% Change Samsung 77.0 22.4% 73.0 21.3% 5.5% Apple 40.4 11.8% 47.5 13.9% -15.0% Huawei 32.1 9.4% 29.6 8.6% 8.4% OPPO 22.6 6.6% 9.6 2.8% 136.6% vivo 16.4 4.8% 9.1 2.7% 80.2% Others 154.8 45.1% 173.6 50.7% -10.8% Total 343.3 100.0% 342.4 100.0% 0.3% Q2 2016 Smartphone Units (IDC) -20% -10% 0% 10% 20% 30% 40% 50% -20% -10% 0% 10% 20% 30% 40% 50% Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 GrowthShare Samsung Smartphones vs The Market Samsung Smartphones Share Samsung Smartphones YoY Smartphones Market YoY
  17. 17. Aquilla Source: Samsung Electronics Results Competitive Landscape - Feature Phones Samsung Still Playing •(Data on feature phone shipments is sketchy, so these numbers should be treated with caution) •In a market that appears to have bottomed out (as third-tier emerging markets get on board), Samsung continues to lose share sharply, but remains a player (depending on how Tizen is categorised) •The main competition is coming from domestic players in the large emerging markets, in particular India’s Micromax, Intex and Lava Source: Counterpoint Research -40% -20% 0% 20% 40% -40% -20% 0% 20% 40% Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Growth Share Samsung Feature Phones vs The Market Samsung Feature Phones Share Samsung Feature Phones YoY Feature Phones Market YoY
  18. 18. Aquilla Source: Samsung Electronics Results Competitive Landscape - Tablets Samsung Still Second in a declining market •Samsung declined faster than the market, as Lenovo, Huawei and Amazon took share •Apple still holds top slot, and its focus has switched strongly to enterprise, with its IBM, SAP and Cisco partnerships, and the iPad Pro •Lenovo has secured third place, and is the standard bearer for Windows 10 tablets •Huawei also continues to make waves in tablets •Amazon surged again, with a focused set of products •Microsoft has still to enter the top 5, giving hope for its OEMs Source: IDCSource: IDC -30% -20% -10% 0% 10% 20% 30% 40% -30% -20% -10% 0% 10% 20% 30% 40% Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 GrowthShare Samsung Tablets vs The Market Samsung Tablets Share Samsung Tablets YoY Tablets Market YoY Q2’16 M Q2’16% Q2’15 M Q2’15% Change Apple 10.0 25.8% 11.0 24.9% -9.2% Samsung 6.0 15.6% 8.0 18.2% -24.5% Lenovo 2.5 6.6% 2.5 5.6% 3.1% Huawei 2.2 5.6% 1.3 2.9% 71.0% Amazon 1.6 4.0% 0.1 0.3% 1208.9% Others 16.4 42.4% 21.3 48.2% -22.9% Total 38.7 100.0% 44.1 100.0% -12.3% Q2 2016 Tablet Units (IDC)
  19. 19. Aquilla Samsung’s Q2 2016 Un-Audited Results Analysis These popular slides cover an in-depth analysis of Samsung’s Q2 results The slides shown are a subset To receive the full set, including additional slides, charts, commentary, interpretation and outlook plus all slides in full colour contact Aquilla Europe nick@aquilla-europe.com
  20. 20. Aquilla Nick Graves, CEO • nick@aquilla-europe.com • +44 780 225 6536 Aquilla Europe Ltd • Kennett Cottage • OX9 3QS • UK • www.aquilla-europe.com
  21. 21. 33 Copyright Aquilla

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