Semiconductor business carries Samsung to strong full-year profit

Almost half of Samsung Electronics' FY16 profit was attributable to its semiconductor business, overshadowing its once dominant mobile business.
Written by Chris Duckett, Contributor
(Image: Samsung)

Samsung Electronics has posted its most profitable year since the heady days of FY2013 when its mobile business was firing on all cylinders, on the back of its semiconductor business contributing 13.6 trillion won to a total operating profit of 29.24 trillion won.

The mobile unit added 10.8 trillion won in profit, while its consumer electronics and display panel business contributed 2.6 and 2.2 trillion won, respectively.

Revenue for the full year was flat, with 202 trillion won in sales booked during 2016, compared to 201 trillion won the year prior. The semiconductor business increased sales to 51.2 trillion won, while mobile saw a slight drop to 100 trillion won for the year.

For the fourth quarter, overall revenue remained flat, at 53.3 trillion won, while profit jumped from 6.1 trillion won in 2015 to 9.2 trillion won this quarter.

Compared to last year, semiconductor profits grew from 2.8 trillion won to 5 trillion won, mobile slightly increased its profit to book 2.5 trillion won for the fourth quarter, and the display panel unit more than quadruped its 0.3 trillion won last year to claim 1.3 trillion won. The consumer electronics business was the only one to register a profit decline, as it dropped from 0.8 trillion won to 0.3 trillion won.

"Fourth-quarter earnings were driven by the components businesses, mainly the memory business and the display panel segment, which manufactures OLED and LCD screens," the company said in a statement. "Robust sales of high-end, high-performance memory products and expanded process migration in V-NAND, plus strong shipments of OLED and large-size UHD panels contributed to profitability. The stronger US dollar against the Korean won also had a positive impact on operating profits."

Samsung expects "huge growth" in its high-density, high-performance memory thanks to the uptake of artificial intelligence, autonomous vehicles, and servers commissioned for big data tasks.

"Looking at the mid to long term, based on paradigm shifts in the IT industry from the growth of IoT, AI, and automotive businesses, new demand is expected to spur growth in the components business," the company said.

For its mobile business, the company said it continued to see robust sales of its Galaxy S7 and S7 Edge alongside increased profits in the lower end of the market; however, next year it expects global smartphone sales to fall.

To combat this decline, Samsung said it would introduce "AI-based services" on its flagship models.

Samsung Galaxy Note 7 battery report

Touching on the findings of its internal investigations into the cause of the battery explosions affecting its Note 7 device, Samsung said its priority would be to "ensure consumer safety and product quality".

In announcing its report into the explosions on Monday, Samsung said faulty batteries from suppliers, which included a Samsung subsidiary, were to blame.

Batteries used for the device from Samsung SDI and ATL had different problems, but both led to an internal short circuit that led to the battery catching fire.

Samsung mobile president DJ Koh said the ultimate responsibility fell on Samsung Electronics for giving the go-ahead, and announced a new eight-step inspection process -- durability testing, visual inspection, X-ray testing, charge and discharge testing, leak detection testing, disassembling testing, accelerated usage testing, and battery voltage comparison testing -- to be applied to future smartphones.

"To make an innovative Note 7, we set the target specification for the batteries, and feel a grave responsibility for failing to test the battery design and manufacturing process before launch," he said. "We will put safety and quality first going forward."

The company previously said it expected to take a 2.3 to 2.7 trillion won profit hit in this quarter, followed by a 1 trillion won decline in the first quarter of next year.

Samsung's yearly profit numbers were in line with guidance released earlier this month.

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