In the first half of the year, the financial report was bleak and the Chinese factory was closed. What happened to Samsung Electronics?

In the first half of the year, the financial report was bleak and the Chinese factory was closed. What happened to Samsung Electronics?

Japan-Korea trade dispute, Samsung Electronics faces the danger of Japan's upstream manufacturers out of supply, the mobile phone business is chased by Huawei and other Chinese manufacturers around the world, can the electronics industry overlord get out of the dilemma?

Affected by the decline in both core business semiconductors and smartphones, Samsung Electronics surrendered a bleak financial report in the first half of this year.

On July 31, the latest financial report released by Samsung Electronics showed that Samsung Electronics sold a total of 1,085,200 won in the first half of 2019, down 8.8% year-on-year; operating profit was 128,300 won, down 57.9% year-on-year.

To add insult to injury, the trade friction between Japan and South Korea will also have a negative impact on Samsung's semiconductor business. In addition, in September this year, Samsung Electronics will also close the last Chinese factory.

As the world's largest mobile phone giant and the former Chinese mobile phone market leader, what happened to Samsung Electronics?

The worst financial report in three years

Samsung's financial report shows that in the second quarter of FY 2019, Samsung Electronics' revenue was 56.13 trillion won (about 47.563 billion US dollars), down 4% year-on-year; operating profit was 6.60 trillion won (about 5.593 billion US dollars), down year-on-year. 56%. The profit margin is 11.8%, the lowest since the third quarter of 2016.


Samsung's various segment sales and turnover for the second quarter of 2017 to 2019. Source: Samsung's second quarter earnings report for 2019

The semiconductor division, IT and mobile communications are the two core segments of Samsung Electronics, and both core sectors have experienced a dangerous decline.

Among them, the semiconductor division as Samsung's profit pillar, sales of 16.09 trillion won, down 26.8%; operating profit of 34,000 won, compared with the same period last year, a significant diving 71%, while falling to the lowest level in three years, the global semiconductor industry The cycle has led to a decline in chip prices is one of the main reasons. The chip business margin was 21.1%, the lowest in five years. Samsung expects that memory chip demand will grow in the second half of the year, benefiting from server DRAM customers resuming purchases.

The IT and mobile communications division's flagship product is a smartphone. In the second quarter of this year, revenue was 258,600 won, an increase of 8% year-on-year, but operating profit was 1.56 trillion won, down 41.6% year-on-year. To this end, Samsung plans to launch two high-end mobile phone products in the second half of this year, including the first folding screen mobile phone, but the profit growth is expected to be limited by the weak global smartphone market.

But the financial report also shows that Samsung Electronics also has a bright spot. Sales of the consumer electronics division was 11.07 trillion won, up 6% year-on-year; operating profit was 71 million won, a significant increase of 39.2% from the 51 million won in the same period last year, mainly due to strong sales of refrigerators and washing machines.

Sales of the display panel division was 7.62 trillion won, a year-on-year increase of 34%. Operating profit was 75 million won, a turnaround to profit, a year-on-year increase of 435.7%.

Although the sales of consumer electronics and display panels are not small, the profits are as thin as a blade, and they cannot save the gloom of the financial report as a whole.

On July 31, Samsung Electronics opened an opening price of 46,200 won on the Korea Exchange. As of press time, Samsung's share price fell 1200 won to 45.35 million won in intraday trading, a decrease of 2.58%. In the past 52 weeks, Samsung's stock price was up to 48.45 million won and the lowest was 36.85 million won. After the mobile phone bombing, its share price once rose, the highest point was 56,400 won on November 10, 2017, and it has fallen all the way.




Japan-Korea trade disputes and pool fish

Samsung Electronics' semiconductor division once occupied the dominant position of the world's memory chips. Its sales and operating profit plummeted in the first half of this year, which is an important reason for the bleak earnings.

Samsung said that the memory chip market is still weak, and demand growth is facing uncertainty. “The company not only faces the challenge of business uncertainty, but also faces the challenges of the global macroeconomic environment.”

Samsung also said that research and development investment in 5G, system chips, AI and automotive will continue to grow. Zhang Daijun, dean of Samsung Electronics China Research Institute, has previously revealed that by 2020, Samsung is expected to invest $161 billion in innovative technologies such as 5G and artificial intelligence.

It is worth noting that in the second quarter, Samsung’s total expenditure reached 6.2 trillion won, of which the semiconductor sector’s expenditure reached 5.2 trillion won.

The semiconductor industry is cyclical. In the past few years, the memory chip industry has experienced rapid growth due to the explosive growth of terminals such as smartphones. Now, with the growth of the smartphone market and the negative growth, the memory chip industry is gradually weakening. Both demand and price fell. Not only Samsung Electronics, but last week, its competitor SK hynix announced that it will cut investment and production to support the recovery of chip demand.

For the market outlook, Samsung Electronics is still optimistic, and believes that although there is uncertainty, it is expected that chip demand will recover in the second half of the year.

But now Samsung Electronics is still in urgent need of facing the threat of economic and trade disputes between Japan and South Korea. The three key materials blocked by Japanese export restrictions recently will also have a negative impact on South Korea's Samsung Semiconductor and display screens.

The three key materials are Fluorine Polyimide, core material photoresist in semiconductor fabrication, and high purity hydrogen fluoride (EatchingGas). At the beginning of July, Japan announced that the three materials will not be given preferential treatment when they are exported to South Korea, and that the exporter must obtain permission for each shipment. It takes about 90 days to obtain the license.

These three materials are important materials for manufacturing semiconductors. Japanese companies control 93% of the world's high-purity hydrogen fluoride market, 72% of the high-end photoresist market, and more than 90% of the fluorinated polyimide market. Upstream supplier. Japan’s restrictive measures have almost “shocked” the Korean semiconductor industry.

Especially for Samsung Electronics, in terms of technology, it is at a critical moment in the 5nm process of TSMC. Samsung Electronics has received orders for NVIDIA's GPU7nm chip. At present, NVIDIA has decided to use the 7nm process of Samsung and TSMC. The reality is that if these three kinds of raw materials are not available, the inventory of Korean companies can only last for 3 to 6 months, when the inventory is exhausted, the factory is forced to stop production.

In order to solve the problem, Samsung Electronics Vice President Li Zaijun and SK Hynix President visited Japan successively, trying to mediate, but they all failed.

More seriously, on July 30, the South Korean Foreign Ministry said that Japan may remove South Korea from the "white list" of trade preferences in the cabinet meeting held on August 2. Once South Korea was removed from Japan's trade preferences "white list", not only the three important materials returned to normal supply, but the equipment and "raw materials" necessary for Samsung's OLED screens were also in danger of being cut off.

According to statistics, in the first quarter of 2019, Samsung OLED screens accounted for 85.7% of the global market share, but once encountered in Japan, "vacuum evaporation machine", metal mask FMM (Fine Metal Mask), FMM metal materials The supply of Samsung OLED screens may also be shut down, customers can only choose Chinese manufacturers such as BOE.

At present, Samsung Electronics is self-help and debugging the use of hydrogen fluoride products manufactured by local Korean companies and Chinese companies. Whether these alternative supplies can be kept up to date is unknown.

Samsung mobile phone retreats to China: shutting down the last factory

To add insult to injury, a number of media reports said that Samsung will close its last mobile phone factory in China as soon as September this year, and is currently doing final liquidation.

The factory is located in Chenjiang Town, Huicheng District, Huizhou City. It was officially put into operation in 1993 and is Samsung's main production base in China. According to public information, the Huizhou Samsung factory has 5,000 employees and produces 72 million mobile phones per year. The Huizhou factory once accounted for 17% of Samsung's global mobile phone production.

Since May of this year, Huizhou Samsung Electronics official WeChat public number has begun to promote the recruitment information of other companies. On July 9, Huizhou Samsung Electronics official WeChat public account announced a corporate recruitment seminar, including Berne Optics, BYD, Guanghong Technology, TCL KONE, Yiwei Lithium, Desai Battery and other enterprises. Since then, the recruitment information of Foxconn, How Peng International, KTC Technology and other companies have also appeared in the public number. The act of actively finding a way out for employees is equivalent to the fact that the factory is closed in disguise.