Samsung faces an uphill battle to retain its profitability for 2015. The South Korean tech giant reported a profit decline of two thirds in mobile for the fourth quarter, while its semiconductor business enjoyed a much-expected boom thanks to high demand.
Samsung has consistently shown throughout its history that it never backs down when it comes to investing in the future, whatever the market climate may be.
"We invested 23.4 trillion won in facilities [CAPEX] last year. There was no big difference from our initial plan. For each business, semiconductors and display were 14.3 trillion won and 4 trillion won [respectively]," said Robert Yi, senior vice president, head of Samsung's investor relations group.
"We are evaluating the current global environment and market conditions of businesses, and we estimate that facilities investment for 2015 will increase compared to the previous year."
Samsung last year announced a new $14 billion semiconductor plant that will be built in South Korea. It is widely expected that it will increase the production rate of its plant that produces 3D V-NANDs in China in 2015. Billions of dollars are being poured into Vietnam to build the new handset and home appliance plant.
Samsung's semiconductor arm posted a yearly profit of 8.78 trillion won for 2014, a rise of 1.89 trillion won from the previous year. The company, as well as South Korean market watchers, expect that it will retain or grow the business further this year, with high demand for its memory chips in mobile and servers.
"For 2015, year-on-year DRAM bit growth of the market is expected to be mid-20 percent. Our company's DRAM growth rate will exceed that of the market," said Yi. "[In NAND] the bit-growth of the market will be late-30 percent. [Samsung's] NAND flash growth rate will exceed that of the market."
Jeeho Baek, senior vice president of Samsung's memory marketing team, expects higher uptake for its LPDDR4 memory, which the company touted as the world's first.
"LPDDR4 will account for 15 to 20 percent [of overall Samsung's mobile memory chip production]. It will be a must-have in flagship products [of both Samsung and client's]," he said.
Baek expects that demand will be "steadied" going forward for LPDDR4. The company, which was first to start mass production for 3D V-NANDs, plans to balance the production ratio of 3D V-NANDs and 2D NANDs. The move is likely to control cost, as 3D V-NANDs are yet to go as low as 2D NANDs due to shortness of supply in the market.
"In SSDs, for low-capacity products, we believe 2D is still needed, so up to this year, we plan to vary the production ratio of 2D and 3D products," said the executive.
Besides memory, Samsung has been faring quite poorly in processors and contract production due to low demand for its Exynos system-on-a-chip (SoC) and having production for Apple's A series going to rival TSMC of Taiwan.
Joe Hur, vice president of Samsung's System LSI business, its logic chip-making division, said revenue is rising while profitability is expected to improve for the year. Samsung has already secured clients such as Qualcomm and Apple for foundry for 20-nanometre processes, as well as its touted 14-nanometre FinFet process, company insiders say. Next-generation chips from clients are widely expected to go for the latter process.
No OLED for the year
Samsung's TV boss Kim Hyun-suk already told reporters last year that there will be no OLED TVs for the year, and the company showed no products that use the technology at the recent Consumer Electronics Show (CES). Samsung is instead touting quantum-dot applied LCD TVs, branded SUHD.
"There is some benefits in our quantum-dot TV cost structure [in using] our self-developed non-cadmium quantum-dot films. [But] the point is internalisation of the self-developed technology to produce a non-cadmium quantum dot that is non-hazardous to humans and eco friendly. Effect to cost is minimal," said Simon Sung, vice president of Samsung's visual display business, the name for its TV business.
"As the industry leader, we already have secured all the technology [needed for OLED]. As the industry leader, what we mull over is not only securing the technology, but how to provide real consumers with products with value at appropriate prices."
Sung also said that its SUHD TVs have already realised the wide colour reproduction range and contrast effect that many have cited as OLED's advantage.
Though focusing on LCD TVs for the year, the immediate quarter is expected to fare poorly due to being the low-demand season.
"In the fourth quarter, we sold around 16 million LCD TVs. For this year's first quarter, we expect a 30 percent decline. For 2015, we expect LCD TV sales to increase mid-10 percent," said Yi.
An edged Galaxy S6 without Qualcomm SoC on the way?
Qualcomm recently admitted that it expects profit decline from losing a "large customer" for its Snapdragon 810 processors, which many believe is Samsung. Bloomberg earlier reported that the South Korean tech firm will use its own Exynos for the Galaxy S6, to be unveiled at Mobile World Congress (MWC).
Samsung kept mum on the issue, but whether it will be Exynos or Snapdragon used in the S6, a senior exec stressed that there will be no problem with the rollout plan for the handset.
"Supply and demand for application processors (AP) and other components [that will be on our next smartphone, the Galaxy S6] is progressing without problems," said Jin Young Park, vice president of Samsung's mobile division. However, he declined to comment on Qualcomm or what AP will power its next phone.
The S6 is estimated to use a metal case instead of just plastic by local analysts, and Park hinted as much: "We have secured production yields without problem for metal cases using our accumulated manufacturing know-how. To avoid shortness of supply for metal cases, we will flexibly produce them internally or outsource them."
The new flagship phone, like the Galaxy Note 4, is widely expected to have a standard version as well as a wraparound "edge" version.
"We aim to start operating our new flexible [display] line, the A3, within the second quarter of the year. Through this, we will actively meet demands for flexible smartphones," said Chang Hoon Lee, vice president of Samsung Display, Samsung Electronics' display panel supplying affiliate.
Production during the first quarter is most likely for the Note 4, but ramping up production could mean that the S6 will have an edge version, or that the company expects to release more models with flexible display for the year.
"Before we began operations of our new flexible [display] line, we are currently producing [flexible displays] using the A2's flexible production capacity. We have no problem in supplying [our client with flexible displays] in line with our agreed plan beforehand with our client."
Yi said Samsung sold a total of 95 million handsets in the fourth quarter, with 70 percent of them smartphones. According to Strategy Analytics, both Apple and Samsung sold 74.5 million smartphones during the quarter, after Apple's iPhone 6 and increased sales in China were responsible for its recent growth.
Samsung sold only 11 million tablets for the quarter; much like Apple, it is suffering from decline in the popularity of the category, which is being cannibalised by phablets.
Yi said handset sales will increase in the first quarter, while tablets will further decline.