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Samsung Electronics is a South Korean technology conglomerate that manufactures Consumer Electronics, specifically digital media, telecommunication networks, semiconductors, and LCD. In fiscal year 2008, Samsung's mobile phone, LCD panel, and digital media segments grew significantly - mobile phone sales grew by 37%, LCD panel sales grew by 31%, and digital media sales grew by 37%.[1] The TV business grew shipment by 54% over 2007 and its global market share surpassed 20%, as Samsung maintained its industry-leading net profit margin and continued to lead the competition in the 40-inch and larger TV panel market.[2]

Samsung has been faced with greater demand and competition as consumers are increasingly resorting to cell phones, PDAs, smartphones, and portable media players to access audio, video clips, and data all at once. In response, Samsung's Mobile Innovator released the mobile widget software developer kit for its TouchWiz user interface in August 2009, which allows developers to create widgets for different Samsung phones.[3] Consumers' expectations and cyclicality in DRAM (memory semiconductors) profitability indicate potential for expansion and new developments.

Company Overview

Business and Financial Metrics

In 2008, Samsung's sales revenue was 121,294 billion in KRW, having grown 23% from 2007 and 41% from 2006.[4] However, operating profit decreased by 33% and net income decreased by 26% from 2007[4] which can be attributed to Samsung's significant drop in operating margin in the memory chip market and flat-screen sector.[5] Operating margins at Samsung's semiconductor sector fell 18% in 2007.[5] Since 2007, Samsung operated a "cell-based" manufacturing system that has doubled productivity for the Digital Media & Communications Business Product portfolio.[2] Samsung's R&D segment developed a component of smart card information security.[2] The company successfully developed the highest-density 512KB smart card in 2005 and 2MB embedded smart card in 2006. The newly develped smart card ICs has reflected Samsung's strong R&D capabilities.[6] Samsung has also ranked higher than Sony (SNE) for the past two years in the Interbrand Best Global Brands rankings.[7]

Annual Financial Data
(in KRW billions)[4] 		2006 2007 2008
Sales 85,835 98,508 121,294
Operating Profit 9,129 8,973 6,032
Gross Profit 25,773 27,627 31,532
Net Income 7,926 7,421 5,526

Business Segments

Samsung: 2008 Consolidated Sales Breakdown by Division
Samsung: 2008 Consolidated Sales Breakdown by Division[8]
The company operates through four main business segments: Digital Media, Telecommunication Networks, Semiconductor, and LCD. Samsung electronics manufactures appliances including TVs, refrigerators, washers, air conditioners, and calculators. In 2008, the digital media and telecommunication networks segments grew significantly in gross sales (almost 37% growth).[1] The semiconductor segment declined very slightly in gross sales (less than 1% decline).[1] In terms of sales, the digital media is Samsung's largest business segment, and other divisions, which includes financing and software make up the smallest business segment.[9]
  • Digital Media (35% of Sales): This business line includes digital flat-panel TVs and monitors, audio and video equipment, cameras and camcorders, computers and peripherals, printers and multifunction devices, and home appliances. Samsung's TV and monitor business segments make up the largest portion of Samsung's net sales, with 42,191,768 million in KRW in 2008.[10] Samsung's shipments in the TV business grew by 54% from 2007, as global market share increased to over 20%.[2] Net Sales grew by nearly 28% in 2008.[10] Samsung utilized patented technologies to increase TV sales, such as the digital natural image engine technology (DNIe) in 2004.[11] This technology was applied to regular Samsung TV and digital products that allows consumers have optimal on-screen image quality.[12]

Contents

  • Telecommunication Networks (28% of sales): The telecommunication networks division includes mobile phones and telecommunications equipment. The product portfolio also consists of MP3 players and turnkey telecommunications network solutions, as well as 4G technologies such as Mobile WIMAX and LTE. In 2008, Samsung delivered Mobile WIMAX network equipment to major operators in the US, Japan, Russia, and other markets.[13] The company also delivered nearly 200 million phones during the year.[2] Net sales for telecommunication networks grew by 29% in 2008 at 34,568,677 million in KRW.[10] Since 2008, Samsung has focused specifically on consumer marketing for their mobile phones. Samsung's Anycall line has been highly successful since 1994, and the TouchWiz UI reflects the adaptability of Samsung's mobile phones to any operating system.[14]
  • Semiconductor (17% of sales): Samsung's semiconductor business ranked number two as a worldwide supplier in terms of revenues, growth, and market share in 2006 and 2007.[15] It is a top supplier of flash memory, SRAM, displayer driver ICs, and MP3 player system-on-chip devices. Samsung is involved in the development of emerging high-tech market segments such as solid-state drive (SSD) storage and "fusion" hybrid semiconductor solutions.[13] At 22,353,359 million in KRW, net sales remained relatively the same in 2008.[10] Samsung and Microsoft (MSFT) were the first companies to develop the hybrid hard drive in 2005.[16]
  • LCD (12% of sales): The LCD division includes LCD panels for the TV, monitor, notebook, and digital information display markets. At 21,517,568 million in KRW, net sales grew by 26% in 2008.[10]

Trends and Forces

Samsung's Innovation Leadership Enables the Company to Benefit from Changing Consumer Expectations

In the past, laptops were used widely by consumers for accessing email and the internet from home and other locations. As mobile broadcast and broadband wireless connectivity services such as WiFi and WiMAX become more common, consumers are increasingly resorting to cell phones, PDAs, smart phones, and portable media players to access audio, video clips, and data. According to AT&T, the number of WiFi connections in the first quarter of 2009 was three times that in the first quarter of 2008, with 10.5 million users.[17] In order to keep up with consumer demand, companies in the consumer electronics industry like Samsung need to rapidly develop differentiated products that support emerging technologies.[18] Consumers want to stay connected at all times with more convenient electronic devices. Also, Samsung is affected by the evolution of service and convergence: Consumers expect a holistic experience from their electronic devices. Manufacturers of electronic devices must contend with the fact that consumers expect a single device to serve as a solution to many of their electronic media and data needs. Consumers are demanding products that can handle both data and media, rather than using PCs and PDAs for to gain data and TVs and portable media players for media information as in the past. Consequently, data-centric companies like Microsoft (MSFT) and Cisco Systems (CSCO) are entering the consumer electronics industry, thereby increasing competition.[18] Samsung introduced the Android in December 2009, a smartphone with GPS navigation, email, web surfing capabilities, touchscreen, and specialized applications that can be bought from the Android Market.[19] Samsung also launched a new smartphone operating system in November 2009 called Bada.[20] This new platform allows developers to create new applications for Samsung's mobile phones, which will aid in providing differentiated products to customers.[20]

Cyclical upturn ahead in global DRAM (Memory Semiconductors) profitability

Based on historical cyclicality of demand for DRAM, the DRAM industry is expected to do well over the next couple of years. After the tech/internet/telecom bubble collapsed in 2000, DRAM had 3 years of extremely low profits, followed by a peak-cycle period from 2004 to 2006, then a weaker profit period from 2007 to 2009. As the decade draws to a close, the global DRAM cycle has been improving and moving toward peak DRAM cycle conditions. Due to the controlled growth in global DRAM supply during the early stages of cyclical recovery, profits for competitors in the electronics industry will increase for a longer period of time.[21] Also, the replacement demand for Windows 7 will most likely boost DRAM demand potential, given the growth in DRAM memory content.[22] Samsung's semiconductors business segment is poised to benefit by this growth, which has been forecast by Samsung's equity research. In January 2009, Samsung developed the world's first 4GB DDR3 DRAM chip.[23] This memory capacity is expected to double every 2 years.[23] Currently, Samsung is the world's largest maker of DRAM, and DRAM revenue increased 42% during the fourth quarter of 2009.[24] Samsung reported revenues of $2,750 million USD during the fourth quarter of 2009 from DRAM sales, while the closest competitors included Hynix and Elpida, with revenues of $1,871 million USD and $1,680 million USD, respectively.[24] With such a dramatic market lead, Samsung is expected to profit as a top DRAM maker, despite having lost market share during the last quarter of 2009.[24]

Competition

Samsung's technical leadership and cost-reduction efforts makes the company a competitive force in the industry. Major competitors to Samsung include:

  • Hynix Semiconductor (HXSCL) is among the world's top makers of DRAM and other memory chips. The company plans to diversify into other chip markets. The company is a primary competitor for Samsung in the Asia/Pacific region.[25]
  • Panasonic Corporation (PC) is a top consumer electronics manufacturer. Its Digital AVC Networks unit makes TVs, VCRs, CD and DVD players, PCs, cell phones, and fax machines. In addition, it also sells batteries, electronic motors, displays, home appliances, and factory-automation equipment. Panasonic owns about 540 consolidated companies and also operates Panasonic Corporation of North America.[26]
  • Sony (SNE) manufactures high-revenue consumer electronics products and gaming systems, including digital and video cameras, Walkman stereos, and semiconductors. The company also owns entertainment divisions such as Sony Music Entertainment, Sony Pictures Entertainment and Sony Digital Production, Sony Pictures Home Entertainment, and Sony Pictures Television.[27]

Other competitors in Samsung Electronic's business segments include:

  • Nokia (NOK) is a manufacturer of mobile devices and is involved in the internet and communication industries.
  • LG Electronics is a global leader in home entertainment products, mobile communications, home appliances, and business solutions.
  • Toshiba (TOSBF) is a leading competitor for Samsung in the electronics equipment industry, specifically semiconductors and digital products. Toshiba is also at the top of the Greenpeace Consumer Electronics Ranking along with Samsung.[28]
  • Dell (DELL) is one of America's largest companies and a global manufacturer of personal computers.
  • Hewlett-Packard Company (HPQ) is a competitor to Samsung as a leading manufacturer of personal computers, commercial and consumer PCs, workstations, handheld devices, and digital entertainment systems.
  • Canon (CAJ) is a competitor in the digital camera and printer segments.

Presently, Sony Electronics is Samsung's closest competitor in the consumer electronics industry.[29] In fiscal year 2008, Sony Electronics reported net sales of 6,613,800 million in yen (approximately $71,608,000,000 USD) and Samsung reported net sales of 121,294 billion in KRW (approximately $105,525,780,000 USD).[4][27] For both companies, the electronics segment has increased in sales during the 2008 fiscal year. However, Sony has faced greater restructuring charges (an increase of 7 billion yen).[30]

2008 Financials Net Sales (millions USD) Net Income (millions USD) Employees
Samsung$105,525,780[4]$4,807[4]164,600
Sony$71,608,000[27]$4,783[27]171,300[31]
LG Electronics$24,625[32]$429.68[32]177,000[33]
Dell (DELL)$61,133[34]$2,497[34]85,450[35]

Market Share

2008 Market Share of Samsung Electronics
Global Laser Printer and Multifunction Printer 13.7%[36]
Global Mobile Phone 16.7%[37]
Global DRAM 30.1%[38]
Global TFT-LCD Panel 25.7%[39]
Global TV 21.9%[40]

Trading on Stock Exchanges

The Samsung stocks are not traded on any US Exchange. The company's home market is the Korean Exchange. Samsung global depository receipts (GDRs) are traded on some European Exchanges including London and Frankfurt.


References

  1. ↑ 1.0 1.1 1.2 Samsung 2008 10-K, Pg. 96
  2. ↑ 2.0 2.1 2.2 2.3 2.4 Samsung 2008 10-K, Pg. 11
  3. ↑ Samsung Press Release, 08/26/09
  4. ↑ 4.0 4.1 4.2 4.3 4.4 4.5 Samsung 2008 10-K, Financial Summary, Pg. 16
  5. ↑ 5.0 5.1 Samsung's Profits Plunge, Extreme Tech, 10/24/08
  6. ↑ Samsung Smart Card, Products
  7. ↑ Interbrand Best Global Brands Rankings, 2009
  8. ↑ Samsung 2008 10-K, 2008 Consolidated Sales Breakdown by Division, Pg. 12
  9. ↑ Samsung 2008 10-K, 2008 Consolidated Sales Breakdown by Division, Pg. 12
  10. ↑ 10.0 10.1 10.2 10.3 10.4 Samsung 2008 10-K, Performance by Business, pg. 18
  11. ↑ Samsung Growth, Encyclopedia.com
  12. ↑ Samsung DNIe Video Processing, Presentation Technology Reviews
  13. ↑ 13.0 13.1 Samsung 2008 10-K, Business Overview, Page 19
  14. ↑ Samsung Telecommunications, PR-inside
  15. ↑ Samsung Semiconductor, Inc., 2007 Worldwide Semiconductor Rankings, Pg. 3
  16. ↑ Hybrid Semiconductor
  17. ↑ MuniWireless, 4/23/09
  18. ↑ 18.0 18.1 Industry Trends in Consumer Electronics
  19. ↑ Samsung's New Android, LinuxInsider, 12/18/09
  20. ↑ 20.0 20.1 Samsung Launches Open Mobile Platform, 11/10/09
  21. ↑ [Samsung Equity Research Spot Report, Lawrence Lee and Sunwoo Kim, 09/02/09, Pg. 4]
  22. ↑ [Samsung Equity Research Spot Report, Lawrence Lee and Sunwoo Kim, 09/02/09, Pg. 5]
  23. ↑ 23.0 23.1 Samsung DRAM Chip, 1/29/09
  24. ↑ 24.0 24.1 24.2 Samsung Remains Top DRAM Maker Amid Dramatic Market Growth, Xbit Laboratories, 1/29/10
  25. ↑ Hynix Semiconductor Inc., Hoovers
  26. ↑ Panasonic Corporation, Hoovers
  27. ↑ 27.0 27.1 27.2 27.3 Sony Corporation, Hoovers
  28. ↑
  29. ↑ Best Global Brands 2009 Rankings, Interbrand
  30. ↑ Sony FY 2008 20-F, Performance by Product Category, Pg. 51
  31. ↑ Sony FY 2008 20-F, Pg. 97
  32. ↑ 32.0 32.1 LG FY 2008 10-K, Pg.43
  33. ↑ Fortune Global, CNNMoney.com
  34. ↑ 34.0 34.1 Dell Financials
  35. ↑ Fortune Global, CCNMoney.com
  36. ↑ Sony 2008 10-K, Pg. 24
  37. ↑ Sony 2008 10-K, Pg. 25
  38. ↑ Sony 2008 10-K, Pg. 36
  39. ↑ Sony 2008 10-K, Pg. 37
  40. ↑ Sony 2008 10-K, Pg. 23
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