Samsung Reports 52 Percent Profit Drop Due To Lower Margins
Fri Apr 15, 2005 9:58 am
Samsung Electronics announced a 52 percent drop in first-quarter profit resulting in falling flat-screen prices, lower profit margins on cell phones, and losses at its credit card affiliate.
The company recorded sales of KRW13.8122 trillion, a 0.6% decrease, operating income of KRW2.1499 trillion, a 40% rise, and net income of KRW1.4984 trillion, a drop of 18% from the previous quarter.
In particular, the rise in operating income came in spite of the difficult business environment caused by factors such as the strengthening Korean Won and a depressed IT industry. While sales decreased, operating profits increased on the back of strong growth in its NAND flash memory business, favorable mobilephone sales and conscious efforts to reduce selling, general and administrative expenses. In addition, margins increased by 5 percentage points to 16% in the first quarter, but net income was impacted by the equity method loss incurred from the increase in reserves at Samsung Card. Sales and operating income of the Semiconductor Business decreased to KRW4.4756 trillion and KRW1.3851 trillion, respectively, because of seasonal factors and currency exchange rates. However the business continued to report high margins of over 30%, attesting to its unique cost competitiveness. With a record quarterly mobile phone shipment of 24.5 million units, the Telecommunication Network Business recorded sales of KRW4.8394 trillion, a 12% rise, and operating income of KRW840.5 billion, a dramatic increase from the prior quarter. In addition, margins improved to 17%. This performance is attributed to the company's strategy to expand output in the first quarter, as well as the 4-month cumulative sales of 3.1 million units of the D500, the company's popular blue-black GSM phone.
The LCD Business reported revenue and operating income figures of KRW1.8983 trillion and KRW23.1 billion, respectively. Despite a decline in LCD panel prices, operating profits increased and the company expects its performance to improve in the second half with a growth in demand for LCD TVs. Digital Media Business sales decreased by 13.8% to KRW1.6585 trillion because of restructuring efforts that resulted in the termination or reduced emphasis of its low- to mid-end product lines. Higher margins from sales of premium product lines diminished the size of operating losses, compared to the prior quarter. Sales of its Digital Appliance Business increased 4.1% to KRW785.8 billion with the growth of sales of high-end home appliances and reservation sales of air-conditioners. The business reported an operating loss of KRW13.8 billion, an improvement from the fourth quarter.
Dr. Woosik Chu, Senior Vice President and General Manager of the IR Team, states, "Despite the challenging business environment, operating profit increased over the prior quarter, demonstrating the inherent strength of Samsung's business model.Ħħ He adds, "While we do not expect conditions to improve in the second quarter, Samsung Electronics will strive to sustain its outstanding financial performance through new growth opportunities, such as the commercialization of DMB services and production commencement at our seventh generation LCD line."
