Samsung Electronics reported today KRW 52.97 trillion in consolidated revenue and KRW 8.15 trillion in operating profit for the second quarter ended June 30, 2020.
Even as the spread of COVID-19 caused closures and slowdowns at stores and production sites around the world, the Company responded to challenges through its extensive global supply chain, while minimizing the impact of the pandemic by strengthening online sales channels and optimizing costs.
Quarterly operating profit rose 26 percent from the previous quarter and 23 percent from a year earlier, thanks to firm demand for memory chips and appliances, as well as a one-off gain at its Display Panel Business.
A partial recovery in global demand since May also helped offset some COVID-19 effects, resulting in higher earnings than initially expected. Revenue in the quarter fell 4 percent from the previous quarter and 6 percent from a year earlier due to reduced sales of smartphones and other devices.
Earnings from the Memory Business improved, led by solid demand from datacenters and PCs. However, slower demand for mobile memory resulted in weaker NAND bit growth compared to the market. System LSI reported lower earnings amid weakness in the mobile market while the Foundry Business saw a recovery in customer demand.
In the Display Panel Business, a one-off gain boosted profits from mobile displays while the Company saw losses from larger panels narrow slightly on increased sales of monitors.
The Mobile Communications Business reported solid profitability on marketing cost reductions and other cost optimizations, despite weaker sales of smartphones.
The Consumer Electronics Division posted higher earnings over growing sales of appliances such as air conditioners and dryers, as well as premium TVs including QLED models. HARMAN reported an operating loss amid deteriorating market conditions in the global auto industry.
Looking ahead to the second half of 2020, Samsung Electronics expect a gradual recovery in demand for mobile devices and consumer electronics. While risks remain due to persisting uncertainties from COVID-19 and growing competitions, the Company will respond to reviving demand through flexible global supply chain management (SCM) to ensure stable supply to customers.
For the Memory Business, the Company expects demand for mobile and graphic memory to recover driven by new smartphones and game consoles. It will focus on flexible and timely management of product mix and investment to meet changing demand for each application.
For system semiconductors, the Company will focus on expanding sales of key products such as high-resolution sensors and 5G system-on-chips (SoCs).
For the Display Panel Business, a full-fledged rebound in earnings from mobile displays is expected in the fourth quarter, as a recovery in mobile phone demand during the third quarter will likely be limited to mid- and low-end models. For large-sized panels, the Company will accelerate development of quantum-dot (QD) displays as planned.
The Mobile Communications Business plans to unveil new flagship smartphones including the Galaxy Note and a foldable phone, while seeking to expand sales of mid-tier models. The smartphone market is expected to witness intensifying competition amid a gradual recovery in demand in the second half of the year.
Samsung also aims to enhance profitability from the Consumer Electronics Division through sales of premium products, including QLED TVs and the Bespoke home appliance series, and more efficient marketing. HARMAN is expected to benefit from the improving business outlook for automobiles and higher consumer audio sales.
In the second quarter, Samsung Electronics’ capital expenditure reached KRW 9.8 trillion, including KRW 8.6 trillion spent on semiconductors and KRW 0.8 trillion on displays. Total capital expenditure in the first half was KRW 17.1 trillion, including KRW 14.7 trillion for semiconductors and KRW 1.6 trillion for displays.
Investment in the Memory Business was spent mainly on equipment for finer process technology and capacity expansion in light of expected growth in memory demand. For the Foundry Business, the Company invested mostly in the advanced 5- and 8nm processes to increase its production capacity.
Memory Business Drives Semiconductor Earnings, to Strengthen Cost Competitiveness in H2
The Semiconductor businesses posted KRW 18.23 trillion in consolidated revenue and KRW 5.43 trillion in operating profit in the second quarter.
The Memory Business saw robust demand for cloud applications related to remote working and online education as the impact from COVID-19 continued, while demand for mobile was relatively weak.
For DRAM, datacenter demand increased as a boost in online activities and video conferencing drove demand for server products. Mobile demand was weak due to seasonality and lockdowns related to COVID-19 in parts of the world including the United States and India. For PC, demand remained solid on the back of low-end laptops, while the impact from manufacturing site closures eased in the second quarter.
For NAND, server SSD demand continued to grow as new services were introduced by datacenters in the U.S. and as demand for social networking and remote services expanded in China. For mobile, demand remained weak as consumer sentiment was impacted by COVID-19 and as the share of mid- to low-end mobile products rose. For client SSD, demand was robust due to increased production of mid- to low-priced laptops. Overall NAND shipments decreased because of weak mobile demand and a temporary lack of product availability to meet all the demand for some applications.
Looking to the second half, overall demand for DRAM is expected to pick up from new smartphone launches, while uncertainties remain around geopolitical issues including trade disputes and the pace of higher content-per-box adoption. Likelihood of solid server demand continues in the second half, but server customers’ inventory and investment plans remain to be closely scrutinized. For PC, desktop demand is expected to be weak but low-end laptop demand is likely to remain solid. For graphic, demand will continue to see strong growth with the launch of new game consoles.
As for NAND, mobile demand is expected to recover on the back of growing mid- to low-end products despite continuing uncertainties. For server SSD, demand is likely to remain strong as online services and activities increase. Demand for client SSD is expected to decline on weak PC demand, but there is a possibility of a recovery as content-per-box grows toward the end of the year.
The Company will focus on flexible product mix and investment, while strengthening the technological leadership in DRAM with the full-fledged application of 1Z-nm and EUV-based products. For NAND, the Company will focus on cost competitiveness and accelerate conversion to 6th-generation V-NAND.
Meanwhile, earnings for the System LSI Business decreased due to a decline in demand for mobile components including SoCs. However, the Company continued to diversify the business with the launch of big-pixel image sensors with ultra high-speed autofocus features and the ‘CC EAL6+’ certified security chip solution, which provides strong privacy protection in smart devices. The Company also diversified its global customer base and increased the portion of overseas revenue.
As for the second half, the number of 5G subscribers and launches of mid- to low-priced 5G smartphones are expected to increase while adoption of high-resolution and triple/quad camera for mobile devices is expected to grow. The Company will seek to expand market opportunities through new products based on its technology leadership.
The Foundry Business achieved record quarterly and half-yearly revenue as customers’ inventory build-ups increased. The Company began mass production of 5nm products and is developing 4nm process technology. The Company also strengthened the foundation for expansion by starting investments in production lines in the Pyeongtaek complex.
In the second half, while the impact from COVID-19 will persist, the Company plans to mass produce mobile and high-performance computing (HPC) products based on advanced process technology. In addition, the Company plans secure stable sales and improve profitability by diversifying applications beyond mobile products and into HPC and consumer products.
Display Earnings Improve on One-off Gain; Demand Expected to Recover in H2
The Display Panel Business posted KRW 6.72 trillion in consolidated revenue and KRW 0.30 trillion in operating profit for the second quarter. Its earnings improved QoQ thanks to a one-time gain despite weaker demand for overall display panels.
Mobile displays saw unfavorable business conditions persist as the global spread of COVID-19 weighed down smartphone sales globally. For large displays, the operating loss narrowed slightly on increased sales of monitors as more people worked from home.
Looking ahead to the second half, Samsung expects demand to recover for mobile displays as major customers are planning to launch new products while risks remain due to continuing uncertainties from COVID-19.
The Company aims to increase sales and profitability by actively meeting demand from its customers and offering mobile panels with differentiated performance and design. It will also focus on expanding the presence in new applications including displays for foldable phones and other IT devices.
For large displays, Samsung will continue to meet demand from its LCD customers until the end of the year and accelerate product development based on new technologies such as QD Displays.
Mobile Profitability Remains Solid in Q2; Shipments Increase amid Market Competition in Q3
The IT & Mobile Communications Division posted KRW 20.75 trillion in consolidated revenue and KRW 1.95 trillion in operating profit for the second quarter.
Amid lockdowns in regions including North America and Europe and store closures due to the global impact of COVID-19, overall market demand decreased QoQ and the Company’s smartphone shipment and revenue declined from the previous quarter. However, efficient cost management, including reductions of marketing expenses and offline promotions, helped the Company report solid profits.
Looking ahead to the third quarter, smartphone sales are expected to rise QoQ, backed by a stronger product mix thanks to the launch of new flagship models, including the Galaxy Note and a new foldable phone, to be introduced at the upcoming virtual Galaxy Unpacked event on August 5th.
For the second half, the overall mobile market is expected to show a gradual recovery. However, uncertainties related to COVID-19 will continue to persist, with market competition expected to intensify as companies strive to make up for weak performance during the first half.
Amid increased market uncertainty, the Company will respond timely to recovering demand in various regions by launching new flagship models as well as strengthening its mass-market lineup. It will also continue efforts to enhance profitability through optimizing product portfolio, building on the improvement in profitability in mass market models since last year.
As for the Networks Business, investments in 5G services were delayed in both domestic and overseas markets due to the global spread of COVID-19. While there are still uncertainties over network operators’ investment schedules, Samsung will continue to explore new opportunities for business expansion.
Appliances, TV Notch Earnings Growth on Premium Products, Supply Chain Management
The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 10.17 trillion in consolidated revenue and KRW 0.73 trillion in operating profit in the second quarter.
Profit for the Visual Display Business rose despite softness in sales as the Company sought new sales opportunities online to overcome difficulties sparked by global lockdowns. The Company also boosted profits by using its diverse locations for sales and production and targeting consumers’ needs for smart TVs. As a result, sales in premium products like QLED and ultra-large models grew both QoQ and YoY in the second quarter. Cost reduction as well as operational efficiency also boosted profits in the second quarter.
The Digital Appliances Business saw earnings in the second quarter improve both on-quarter and over a year earlier as consumer spending in some economies picked up thanks to an easing of lockdowns in some regions. During this bump in demand in the second quarter, the Company expanded sales of premium products including its Grande AI washers and dryers as well as its Bespoke refrigerators. Seasonal demand for air conditioners on top of cost-effective marketing strategies also helped earnings.
For the second half of the year, both TVs and digital appliances are expected to see better performance in sales versus the first half of 2020 once pent-up demand is released after COVID-19 lockdowns ease and year-end holiday spending. Slowdowns in the global economy, rising unemployment and fluctuations in foreign exchange rates will be risks to earnings for the rest of the year, in addition to the ongoing pandemic. The Company will aim to increase profitability going forward through premium product sales and more efficient marketing.
Enhancing Shareholder Communication on ESG
Samsung remains committed to creating environmental and social value to support sustainable growth, and to communicating transparently with shareholders on ESG issues.
In Samsung’s 2020 Sustainability Report, the Company enhanced its disclosure of climate actions based on the Taskforce on Climate-related Financial Disclosure framework. In the report, published in June, Samsung also introduced Sustainability Accounting Standards Board standards for the first time to share its actions and developments in sustainable management.
Huawei and Partners Launch the First Batch of 5GtoB Ecosystem
At the “5G for Good, Innovate for New Value” summit, Huawei and 5G industrial partners jointly launched the first batch of 5G industrial applications. This initiative accelerates the development of 5G, marking the maturity of the 5G industry ecosystem.
Around 50 partners joined the ecosystem so far, including those specialized in both industry and general equipment domains. The scope spans multiple verticals, including 5G industrial communication modules and terminals, 5G antennas, smart manufacturing, smart logistics, smart coal mining, smart healthcare, new media live broadcast, smart city, and smart power grid.
“Year 2020 will see scaled global commercial rollout of 5G and nation-wide deployment in China. The era of rapid 5G development has come. An essential part of the digital foundation, 5G will drive the upgrade in five industries: connectivity, AI, cloud, computing, and industrial applications. 5G is set to realize digital transformation across industries to trigger a new round of high-speed development. With the growing maturity of the 5G industry ecosystem, 5G module shipment has started on a massive scale. After half a year of R&D conducted by industry equipment and module vendors, a large number of 5G terminals for industrial applications have advanced to the project testing phase. Over 100 types of 5G industry terminals are expected to be launched this year. To better support the incubation of the industry ecosystem, Huawei will open up its 5GtoB lab, which will be predominantly used for testing the capabilities of 5G vertical industry terminals. Huawei aims to build a robust platform for developing industrial applications in collaboration with industry organizations, and to promote industry chain development and application promotion together with partners. Our vision is to enable the ecosystem to thrive, explore new fields, and create new value,” said Mr. Xu Weizhong, Wireless Network Chief Strategy Officer of Huawei.
5G drives the digital transformation of industries, facilitating the adaption of 5G network capabilities (from eMBB to URLLC to mMTC) to achieve scaled commercialization of industrial applications. We look forward to working with industry partners to advance 5G across industries toward bigger success.
Huawei Launches Digital Payment Cloud Solution
Huawei launched a new Digital Payment Cloud Solution recently at its Better World Summit 2020 designed to help digital payment service operators build super app centered payment ecosystems that will accelerate digital financial inclusion in emerging markets.
“According to GSMA , mobile money today has over 1 billion registered users after more than 10 years of development,” said Ryan Wu, Director of Huawei Software Marketing & Solution Sales Dept. “However, merchant payment is still at its infancy. We all know that the key to success in the mobile payment business relies on the ecosystem. Super app is a critical platform and engagement point for ecosystem partners and provides an efficient merchant marketplace. Huawei’s digital payment cloud is designed to provide a payment platform and super app that helps mobile payment operators build an ecosystem quickly and efficiently.”
Huawei’s digital payment cloud solution brings value to payment operators from three aspects:
- Extremely Digital Experience: With the digital architecture, both user and transaction data can be opened in real time, ensuring real-time query experience for users and merchants. In addition, real-time risk control can be built based on AI analysis capabilities to identify fake transactions and avoid cash-out risks.
- Expedite Service TTM: With the open ecosystem, the solution provides API (application programming interface), H5, mini apps, and UI bricks technologies that enable partners to launch the service on super app within one week and marketing campaigns from idea to launch within three weeks.
- Agile Iteration: With a cloud native platform, the solution supports container/micro-service, auto-scaling, grayscale release, and enables software updates in days.
In Myanmar, Huawei has cooperated with KBZ Bank to launch KBZPay and within 18 months successfully grew the service to six million registered users, over 1000 partners, and more than 290 thousand merchants. KBZPay’s transaction value has reached over $7 billion, cementing KBZ as Myanmar’s number 1 mobile payment service provider.
HONOR 2020 H1 Business Achievements in International Markets
Huawei announced its business results for the first half of 2020. The company generated CNY454 billion in revenue during this period, representing a 13.1% increase year-on-year, with a net profit margin of 9.2%. Huawei’s carrier, enterprise, and consumer businesses achieved CNY159.6 billion, CNY36.3 billion, and CNY255.8 billion in revenue, respectively. As part of the Huawei Consumer Business Group’s dual-brand strategy, global technology brand HONOR also announced its brand and business performances in its international markets. According to brand equity researcher BrandZ™, HONOR ranked 21st in the “BrandZ Top 50 Chinese Global Brand Builders 2020” list and saw a 34% increase in its brand score comparing to 2019.
HONOR “1+8+N” All-scenario Strategy Made Solid Progress in International Business Development
• In 2020 H1, HONOR ranked Top 1 smartphone brand with 25.9% market share in terms of sales units in Russia. HONOR has been consistently crowned Top 1 smartphone brand in Russia since November 2019.
• In 2020 Q1, HONOR ranked Top 5 in terms of smartphone shipment in Saudi Arabia and ranked Top 3 in the mid- to -high-end smartphone category ($200-$600).
• In 2020 Q1, HONOR ranked Top 5 in terms of smartphone shipment in Czech Republic.
• In the wearable market, HONOR ranked Top 5 in Russia, Malaysia, Czech Republic and India in 2020 Q1.
• In June 2020, the HONOR MagicBook Series ranked Top 1 best-selling ultrabook at DNS in Russia.
• The HONOR MagicBook 14 ranked Top 2 best-selling product at datart.cz, Top 4 best-selling newly launched product at notebooksbilliger.de, Top 5 best-selling laptop, Top 10 searchable products at Boulanger and Top 10 best-selling newly launched product with 4.9-star customer rating on amazon.co.uk.
Smartphones with Huawei Mobile Services Ecosystem Experienced Robust Growth in Market Share in Russia
In 2020, HONOR launched seven smartphones with Huawei Mobile Services Ecosystem in Russia, including the HONOR 30 Series, HONOR View30 PRO, HONOR 9C, HONOR 9A and HONOR 9S. The market share of these smartphones achieved 8% increase in sales units by the end of 2020 Q2. In June 2020, the HONOR 9A and the HONOR 9S both ranked Top 5 best-selling smartphones in Russia.
Huawei Mobile Services Ecosystem is growing rapidly, reaching 700 million global Huawei device users, with a year-on-year growth of 32%. Until 25th July, The number of registered Huawei developers worldwide has reached 1.6 million, up 76% year-on-year, with more than 81,000 innovative applications integrated HMS Core open capabilities.
In Russia, the ecosystem is continuously growing and developing strong and successful partnerships across segments represented on the AppGallery such as Yandex, Mail.ru, Sberbank, S7 Airlines, Wildberries, Alfa Bank, Ozon and many others. Recently Sberbank, Russia’s largest bank and a leading global financial institution, launched its contactless payment solution SberPay to all NFC-enabled smartphone users, notably HUAWEI and HONOR users. The service is a feature of the Sberbank Online mobile application, available in the AppGallery, for Visa cardholders. In the near future, this service will also be available to other payment systems. Linking a card with SberPay via Sberbank Online will allow users to make contactless purchases, withdraw cash, and top-up money into their bank accounts at NFC-equipped ATMs. Each transaction is authorized with fingerprint scanning or via a digital code. This partnership with the AppGallery is a vital step to build a more well-developed and seamless ecosystem for global users.
HIHONOR.COM Retains Solid Programs that Drove month-on-month Sales Growth and User Registrations
As the official online store, HIHONOR.com delivers a one-stop shopping experience that offers a comprehensive range of HONOR products and customer-centric services. After upgrading the online shopping experiences in the UK, France, Germany, Italy, Spain and Netherlands, HIHONOR.com experienced an average 146% month-on-month sales growth among those countries in the first half of 2020. It also contributed to 30% of the HONOR MagicBook Series sales revenue and 20% of HONOR MagicWatch 2 sales revenue in Western Europe, playing an essential role in HONOR’s business development. Globally, HONOR has established 14 HIHONOR.com online stores with over 2.79 million registered users across its international markets.
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