Last week, South Korea based Samsung, the giant of consumer electronics vertical integration and diversified manufacturing, reported impressive earnings and profits for its September ending quarter. The company almost doubled net profits to nearly $5.8 billion while recording a 26 percent increase in revenues. Samsung attributed the bulk of these positive results to the increasing sales momentum of its Galaxy smartphone and other mobile communications products, which collectively contributed more than half of revenues and profits. Impressive results were also fueled by strong demand for Samsung’s OELD LCD display panels embedded in other smartphones, tablets and television products. Samsung reported that its Display Panel segment outperformed the Semiconductor Business in terms of year-on-year revenue growth, a strong testimonial to the fact that a value-chain component supplier to other OEM’s can produce money and profits.
Operating profit nearly doubled to $7.4 billion, which is noteworthy, given its ongoing competitive battle with rival smartphone and tablet producer Apple.
On the not so positive end, Samsung’s Semiconductor segment posted an 8 percent year-on-year decline in overall revenues while its PC DRAM memory chips business also declined due to increased competition and consequent excess market supply.
Investors, however, had a far different reaction, reducing shares by 2 percent directly after the announcement on fears of a potential saturated market in developed economies and heightened competition for penetrating developing and emerging markets. Continued signs of a declining global economy have also concerned investors, even when it comes to hot selling products such as smartphones and tablets.
An article posted on the Seattle Post Intelligencer web site cites research firm IDC’s latest account of smartphone market volumes. According to IDC, while Apple sold 26.9 million smartphones in its latest quarter, Samsung sold 56.3, over double the volume. Many media outlets are enamored with the coverage of the quarterly smartphone sales of Apple, and often lose the perspective that Samsung has even more impressive performance. Keep in mind that Samsung insured that its latest Galaxy product introduction came before Apple’s iPhone 5 market unveiling announcement.
In the fourth quarter, Samsung expects the smartphone market to continue its current growth momentum with increased demand, especially in emerging markets. Samsung plans to further cement its leadership by leveraging the GALAXY S III and by ramping up sales of GALAXY Note II, its newest product.
Supply Chain Matters has itself often commented on the scale and performance of Apple’s global chain, but we respect that of Samsung as well, particularly when readers consider that Samsung also provides much of its own component supply, including the latest high-end OLED LCD display panels and processor chips that are featured on Galaxy phones. We have also shared commentaries related to the supply chain fallout of the ongoing competitive battle between Samsung and Apple. Many industry watchers, as well as we, are of the belief that, in the end, both companies will not damage their long-term component supply agreements because there is too much at stake for both companies. Samsung is the prime supplier for ARM microprocessor chips that power iPhones and iPads, along with DRAM chips. Samsung also serves as a back-up LCD display supplier.
In a previous commentary we described the analogy of two extraordinary supply chains represented by the shiny apple vs. the complex orange. While Apple tends to draw lots of media attention, complex Samsung does not garner all the attention of the shiny apple, but the reality is that its supply chain is bigger and can serve multiple purposes.
This ongoing competitive battle not only provides great theatre, but important learning related to implementing agile, effective and responsive supply chain capabilities.