Samsung Electronics (OTC:SSNLF) reported a fairly weak quarter in terms of profitability despite being near the consensus range in terms of revenue. The company reported revenue of 53.3 trillion Won, which fell slightly below consensus estimates of 53.5 trillion Won. The slight miss on revenue wasn’t the problem as profitability declined from 5.35 trillion Won to 3.22 trillion Won year-over-year in Q4’ FY15. The consensus anticipated net income of 5.4 trillion Won, and it was not broadly anticipated that non-operating items would swing the P&L so significantly in Q4’15.
The earnings decline primarily came from the component business according to the earnings conference call. The Korean Won strengthened during Q4, which translated into approximately 400 billion Won in negative impact to operating profit in the component business. The company also reported mark-to-market losses in some of its subsidiary businesses, which netted out into a 1.41 trillion Won loss, which offset equity/finance gains. All in all, when excluding that impact, the profitability was similar to the prior-year period, but the stock declined following the earnings announcement due to the uncertainty in mobile/component guidance.
The memory business will likely decline sequentially due to seasonality. The company didn’t provide a whole lot of guidance on the memory business, but when compared to semiconductor peers, I do anticipate Samsung to retain its competitive market share due to pricing/performance dynamics. The company will continue to ramp up the 3rd generation V-NAND in the first quarter, which is the lone bright spot in the company’s reporting segments as it grew by 17% year-over-year in FY’15. Of course, the competitive dynamics are hard to follow, but competition in the 3D NAND/V-NAND space is expected to increase due to Intel’s ramp-up of 16nm memory components within the enterprise. Micron is also making progress in the consumer segment with lower cost components with lower read/write speeds. It’s not yet clear whether the market will shift away from Samsung components, as the company tends to compete more aggressively to gain OEM share, as it tends to operate at greater economies of scale with less emphasis on margins.
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