Samsung Electronics reports second quarter results

Operating profit and net income for the quarter were $1.9bn, and $2.12bn on a parent basis, increasing by 108% and 51% year-on-year respectively. Revenues and operating profits on a consolidated basis were $28.9bn and $2.4bn.

Samsung demonstrated relatively solid performance thanks to its competitive LCD business and profitable memory business, overcoming challenging conditions including a global economic slowdown, sluggish demand in key markets, a surge in raw material prices, and increases in marketing expenses.

"The second quarter has been extremely challenging due to stagnant demand and price drops in the memory market, along with growing price competition in the mobile and LCD TV markets,"

said Dr. Woosik Chu, executive vice president of investor relations.

"Amid these challenges, Samsung demonstrated its competitiveness by reaching an operating margin of 21% in our LCD business, upholding an operating margin of 13% in telecom, and maintaining profitability in our memory business,"

Chu added.

Outstanding Performance in LCDs

The LCD Business posted operating profit reached $992m with a profit margin of 21%, while revenue grew 9% quarter-on-quarter, reaching $4.67m on a parent basis. On a consolidated basis, its operating profits of $1.04bn and revenues of $3.88bn on a consolidated basis.

Strong and stable customer bases, in particular major TV set makers, helped to drive steady growth in LCD revenues, despite weak seasonality and price decreases for LCD panels throughout the quarter. Large panel shipments increased to 25.4m units, up 11% quarter-on-quarter, while TV panel shipments reached more than 5 million units. Steady demand in panels for notebook PCs also contributed to the business' favorable results.

For the second half of 2008, sales volume is expected to increase due to strong seasonality from TV set makers preparing for high product demand typical of the third and fourth quarters. Risks faced by the LCD Business in the next quarters include decrease in demand resulting from a global recession and the growing capacities of panel makers.

The LCD Business expects to enhance its profitability by focusing on large and premium panels such as full HD panels for TVs, LEDs for notebook PCs and wide panels. The launch of full-scale operations for phase two of the LCD 8-1 line will continue to secure frontrunner status in the industry overall, extending Samsung's leadership gap over competing panel makers.

Gradual Improvements in Semiconductors

The second quarter operating profit of the Semiconductor Business was $267.84m and quarterly revenue was $4.54bn, increasing by 38% and 4% quarter-on-quarter respectively on a parent basis. The Semiconductor Business improved its revenue and operating profit despite weak demand, posting a quarterly operating profit of $297.6m on revenue of $5.198bn on a consolidated basis.

Factors influencing the favorable results included cost competitiveness achieved through the expansion of 68nm DRAM technology and 51nm NAND technology, as well as continued improvements in yield. The System LSI division in particular demonstrated strong performance thanks to relatively robust demand in Display Driver ICs, Smart Card ICs and CMO Image Sensors.

The Semiconductor Business anticipates that the global economic slowdown may impact its performance throughout the second half of the year with limited opportunities for increased demand. Despite relatively slack industry conditions, Samsung will further strengthen its cost competitiveness via ramp-ups of the company's 56nm DRAM and 42nm NAND technologies. Furthermore, Samsung will invest more than $6.944bn in DRAM and NAND capital expenditures, as announced earlier this year, to solidify the company's market leadership and enhance future competitiveness.

Maintaining Double Digit Margin in Telecommunication

The quarterly operating profits of the Telecommunication Business were $783.68m on revenues of $6.091bn on a parent basis. The Telecommunication Business posted quarterly revenues of $7.81bn and operating profit of $882.88m on a consolidated basis. The quarter's results included relatively less profitable performances by PCs, MP3 players, and set-top boxes, three operating units recently transferred to the Telecommunication Business from the Digital Media Business. Its operating margin reached double digits of 12.8% despite high marketing costs to support launch of new premium products, such as the Soul and Omnia.

Sales of handsets achieved 45.7 million units, with total unit sales for the first half of 2008 reaching 92 million units, an increase of more than 20% year-on-year. Strong sales of premium phones both in domestic and overseas markets boosted the mobile phone ASP to $143, an increase of 1.4% quarter-on-quarter, overcoming sluggish demand in developed markets.

The Telecommunication Business forecasts new challenges for the second half of the year, including a global economic slowdown, Korean won depreciation, and greater marketing expenditures. Samsung will address these challenges, and anticipates growth beyond the industry average, with a twofold market strategy: Continued development of strong product portfolios tailored to developed markets as well as emerging markets, and expansion of channel distribution in emerging markets.

To support integration of the PC, MP3 player and set-top box divisions transferred from the Digital Media Business, Telecommunication has established a new organization, the "Mobile Solution Center," to accelerate content development. Samsung is committed to leadership of the mobile internet and multimedia era, providing a total solution portfolio that encompasses all elements from infrastructure, to multimedia devices, to content and services.

Solid Performance in Digital Media

The Digital Media Business posted $2.54bn won in quarterly revenue and an operating loss of $158.72m on a parent basis. On a consolidated basis, operating profit of the Digital Media Business was $138.88m on revenue of $10.25bn on a consolidated basis. Operating profit of the Digital Media Business reflected a negative impact due to greater price competition and increases in material costs.

Sales of air conditioners helped the Digital Media Business with strong demand for Side-by-Side models in the U.S., Europe and BRIC countries. Additionally, Samsung achieved a second quarter market share percentage in the high 20s for LCD TVs in the U.S. Overall shipment of flat panel TVs increased 14% quarter-on-quarter, exceeding average industry growth of approximately 9% quarter-on-quarter.

The Digital Media Business anticipates surpassing its annual sales target of 21 million flat panel TV units, and continues to expand its laser printer product portfolio for corporate markets and distribution channels.