Samsung , which is widely known to be facing profit declines as a result of a margin crunch in its mobile division, reported preliminary earnings results for its fourth quarter on Jan. 8. According to the company's press release , Samsung saw sales of about 52 trillion Korean won and operating profit of 5.2 trillion Korean won. At current exchange rates, that translates into $47.5 billion in sales and $4.75 billion in operating profit.
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While both of these represent significant year-over-year declines from 59.28 trillion Korean Won and 8.31 trillion Korean won a year earlier, the year-over-year declines have become less severe. Case in point, in the third quarter of 2014, Samsung saw a 60% year-over-year decline in operating profit, but this quarter the drop is forecast to be "only" 37% year-over-year.
What's driving this turnaround?
Samsung will report more detailed results later this month, but the analyst community is already chiming in with their takes on these preliminary results.
According to CIO Today, analysts claim that while the company's smartphone business remains rocky, its semiconductor division helped drive the improvement in the year-over-year declines.
Samsung's semiconductor division develops a broad array of products including DRAM, NAND flash/solid state drives, applications processors, and various chips via its semiconductor logic foundry business. Lee Sei-cheol,an analyst at Woori Investment & Securities who was quoted in the CIO Today piece, even went so far as to suggest that Samsung should now be viewed as a semiconductor company.
What to look for when the more detailed results come in
In Samsung's last detailed earnings report, the company gave the following qualitative guidance by segment for the fourth quarter.
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- Mobile -- Samsung expected seasonality to drive tablet/phone sales up, but cautioned that competition would increase (implying potentially higher revenue but lower margins)
- Consumer electronics -- Samsung expected "significantly higher level of market demand growth for TV" in Q4 relative to Q3, driven by seasonal strength in developed markets. It also expected demand growth for digital appliances (air conditioners, refrigerators, and so on).
- Semiconductor -- Samsung expected "solid demand under peak season" for the fourth quarter for memory, implying quarter-over-quarter growth in memory. Samsung also was optimistic about a revenue increase for its System LSI business "driven by increase in 20nm AP supply and expansion of LSI products sales."
- Display--Samsung expected "solid supply and demand condition to continue" for its LCD business, "led by TV panel size increase and UHD TV market growth." It also expected growth in its OLED display business.
In other words, Samsung expected its consumer electronics, semiconductor, and display businesses to all see revenue growth and possibly expanding margins as a result of higher revenue. The only unknown here is the mobile business, within which Samsung might see improved margins from sales of the relatively high margin Galaxy Note 4, offset by the competition in the low end and mid-range.
We'll just have to see what the more detailed results ultimately show. If Samsung can show that even the mobile division has stabilized and guides to an even better Q1, then this could give investors reason to not totally write off the mobile division. If not, then it would probably make sense for investors and analysts to focus more closely on the component businesses going forward, as the analyst quoted above suggested.
At any rate, while the semiconductor business probably won't be able to bring in the eye-popping profits that smartphone rival Apple still enjoys, it appears to be quite lucrative and could serve as a solid foundation for profitable growth in the long run.
The article Samsung's Preliminary Earnings Results Suggest a Turnaround originally appeared on Fool.com.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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