Samsung Soars in Memory and Foundry... Cautious Mode Amid Uncertainty in Future Outlook (Comprehensive)

Semiconductor Sales Reach 26.4 Trillion Won... Surpassing 2018 Supercycle Performance
DRAM Quarterly Shipment Hits New Record... Foundry Also Achieves All-Time High Sales
IM Division Up 25% from Previous Quarter... Success of Galaxy Z Fold and Flip3 Drives Growth

[Asia Economy Reporters Heungsun Kim, Hyunjin Jung, Minyoung Cha] Samsung Electronics achieved sales exceeding 26 trillion KRW and operating profit of 10 trillion KRW from its semiconductor business alone in the third quarter of this year. This marks the highest sales ever, surpassing the third quarter of 2018, which was a semiconductor super boom period. Operating profit reached 10.06 trillion KRW, accounting for 64% of Samsung Electronics' total operating profit in the third quarter. Consequently, Samsung Electronics' total sales in the third quarter also approached 74 trillion KRW, setting a new record.

The driving force behind Samsung Electronics' record-high sales in the third quarter this year is attributed to top performance across all semiconductor sectors, including memory and foundry (semiconductor contract manufacturing). Semiconductor sales recorded an all-time high, surpassing the 2018 'supercycle' period, signaling a positive outlook for Samsung Electronics' strong annual performance this year.

With uncertainties expected to continue in the fourth quarter of this year and next year due to parts supply disruptions and COVID-19, Samsung Electronics has adopted a cautious stance on expanding capital expenditures, focusing on securing technological competitiveness and strengthening profitability. The foundry production capacity is planned to be expanded to about three times the 2017 level by 2026.

Memory, Samsung’s Strength, Soars... Foundry Also Achieves Record Sales

Among Samsung Electronics' semiconductors, memory semiconductors, which hold the largest share, recorded sales of 20.83 trillion KRW in the third quarter. This is the highest memory semiconductor sales since surpassing 21 trillion KRW in the third quarter of 2018. Particularly, DRAM shipments reached a quarterly record high. NAND flash sales also showed growth due to increased demand for server solid-state drives (SSD). Jinman Han, Vice President of Samsung Electronics Memory Business Division, explained, "We actively responded to customer demand, expanded the proportion of advanced processes to reduce costs, and achieved significantly expanded results compared to the previous quarter."

Samsung Electronics stated in its earnings conference call, "The DRAM bit growth in the third quarter grew in the low single digits, and the average selling price (ASP) rose in the high single digits." It added, "The overall DRAM market bit growth for this year is in the mid-20% range, and our company is expected to maintain a similar level to the market forecast."

In foundry as well, Samsung Electronics recorded its highest-ever sales in the third quarter this year. The expansion of mass production at the Pyeongtaek S5 line significantly increased the supply of advanced process products for global customers. Additionally, Samsung secured more advanced process customers and completed the development of the first-generation gate-all-around (GAA) process and design infrastructure for early mass production of 3-nanometer (nm; 1 nm = one billionth of a meter) technology next year.

Whether Samsung Electronics' record-high performance in the third quarter can continue into the fourth quarter and next year remains uncertain. While foundry is expected to experience cost increases, global parts supply shortages persist, and there are short-term concerns about price and demand declines for DRAM and NAND. Regarding next year's memory outlook, Samsung Electronics stated that due to various macro uncertainties such as parts supply issues, the spread of vaccinations, and raw material prices, it is difficult to provide a specific forecast. However, demand is expected to remain strong as server and PC capacities increase and corporate IT investments expand.

Accordingly, Samsung Electronics showed a cautious approach amid heightened uncertainties. Considering these circumstances, the company is still reviewing fourth-quarter investments and did not provide an annual capital expenditure forecast for 2021 in this earnings announcement. In the conference call, Samsung explained, "Due to macro factors such as the recovery from COVID-19 daily life, parts supply, and rising raw material prices, there is significant uncertainty about next year's memory market conditions. Investment plans for memory semiconductors are under internal discussion, and the scale and direction of investments will be decided based on very careful review."

However, regarding foundry, Samsung stated, "We are making unprecedented investments in infrastructure and equipment to secure mass production capacity that can meet customer needs in EUV processes, including expanding production capacity at the Pyeongtaek plant and considering the establishment of a new fab in the United States." It added, "According to these plans, production capacity has expanded 1.8 times compared to 2017, and we plan to expand it nearly threefold by 2026."

Foldable Phone Boom, but Parts Supply Remains a Concern

The IT/Mobile (IM) division recorded sales of 28.42 trillion KRW, down 7% year-on-year but up 25% compared to the previous quarter. Operating profit was 3.36 trillion KRW, a 1.1% decrease from the same period last year but a 0.12% improvement from the previous quarter. Despite industry-wide parts supply issues, the wireless business notably improved its performance quarter-on-quarter.

This was largely due to the success of Samsung Electronics' third-generation foldable phones, the Galaxy Z Fold3 and Galaxy Z Flip3, released in August. Domestic sales of the Z Flip3 and Z Fold3 surpassed one million units within 39 days of launch, marking the third-fastest sales record after the Galaxy Note10 and Galaxy S8, which were major hits. Growth in the Galaxy ecosystem product lineup and mid-range models like the Galaxy A series also supported the performance.

However, for the fourth quarter, there are concerns that the smartphone market will slow due to ongoing semiconductor supply shortages, which is a significant concern for Samsung Electronics. Market research firm Counterpoint Research recently revised its smartphone sales forecast for this year down to 1.41 billion units, a 6% annual growth rate, from the previous forecast of 1.45 billion units, which represented about a 9% increase year-on-year. Samsung plans to expand sales with the Bespoke Edition and maintain momentum for the Galaxy S series to increase premium segment sales.

Samsung Electronics stated, "It is difficult to predict when semiconductor parts supply issues will be resolved," adding, "We will optimize supply timing through cooperation with partners and efficiently rebalance parts supply to minimize impact."

QD Display Begins Full-Scale Mass Production... CE Faces Weakening Pent-Up Demand

The display division also improved profitability through expanded sales of high-performance products, including foldables, achieving the highest third-quarter profit ever. However, there were mixed results across product categories. Small and medium-sized displays saw increased performance due to new product launches by major smartphone customers, but large displays continued to incur losses due to LCD panel price declines. Samsung stated, "Due to customer requests for LCD panel supply, LCD panel production will continue until the end of the year, and internal review is underway regarding any extension beyond next year."

Samsung expects sales and operating profit growth in the fourth quarter for small and medium-sized displays through new product demand from major customers and increased sales of laptops and gaming devices. For large displays, the focus is on the full-scale mass production of the first Quantum Dot (QD) display products. Samsung emphasized, "QD displays will begin mass production as scheduled in the fourth quarter of this year, with product shipments planned. We are proceeding according to plans to introduce these products to the set (finished product) market starting next year."

In the Consumer Electronics (CE) sector, the 'pent-up' demand effect from increased home appliance demand during COVID-19 has diminished, and profitability has decreased due to rising raw material and logistics costs. Samsung plans to accelerate the global expansion of its 'customized appliances' Bespoke line, considering the expansion of offline sales due to the 'gradual return to normal life (With COVID-19),' and strengthen promotional activities targeting the year-end shopping season to improve profitability.

Meanwhile, Samsung Electronics' board of directors resolved to pay a quarterly cash dividend of 361 KRW per share for both common and preferred stocks. The total dividend amount is 2.4521536 trillion KRW. In response to shareholders' questions about whether there will be a special dividend in the fourth quarter, Samsung stated, "As mentioned in the shareholder return policy from January 20 this year through 2023, starting this year, we will share the annual free cash flow size at the fourth-quarter earnings announcement, and if a meaningful amount of residual funds occurs, we will actively consider early returns. There is no change to this plan."

This content was produced with the assistance of AI translation services.