Samsung Electronics Pre-Earnings Guidance (FY14.2Q)

On July 8, 2014, Samsung Electronics disclosed its FY2014.2Q consolidated earnings estimate as follows.
- Sales: Approximately 52 trillion Won - Operating Profit: Approximately 7.2 trillion Won
The above figures are consolidated earnings estimates based on K-IFRS. Korean disclosure regulations do not allow earnings estimates to be given in a range. Therefore, the above figures are the median of the earnings estimate range given below.
? - Sales: 51 ~ 53 trillion Won - Operating Profit: 7.0 ~ 7.4 trillion Won
※ The above information is provided for the convenience of our investors before the external audit on the financial results of our headquarters, subsidiaries and affiliates is completed. The statements contained herein includes forward-looking statements based on management's current expectations and assumptions regarding the Company's business and financial performance and future events or developments involving the Company, and all such statements are subject to certain risks and uncertainties that could cause our actual results to be materially different from those expressed in this document.
「Samsung Electronics 2Q14 Interim Earnings」Statement
The statement contained herein include items regarding the Company's below the market expected earnings guidance reported today and to provide explanation about the current state of the Company to address market's and investors' concerns over uncertainties until the actual earnings release date.
I. 2Q Earnings guidance
Samsung Electronics' weak 2Q earnings forecast is the result of the strong Korean currency, declined smartphone and tablet shipments, and increased marketing expenses to reduce inventories. The weak demand for IM products also affected the Display and the System LSI businesses’ the second quarter performance.
1) Impact of Exchange Rate
Korean won remained strong throughout the second quarter against US Dollar, Euro and most emerging market currencies, which put negative pressure on the Company's overall earnings.2) Weak earnings of the IM business
For smartphone, amid slow growth of the market, sell-in shipments fell in 2Q due to increase in midto-low end channel inventories as competition intensified among set makers in Chinese and European markets.
As such, Samsung executed marketing expenses somewhat aggressively to reduce channel inventories in preparation for the 3Q peak season and new model launch.
In China, channel inventory level increased due to weak seasonal demand, 3G demand declined ahead of the expected expansion of 4G LTE during the second half and intensified price competition among local players.
As Samsung maintained high level of market share (around 40%) in Europe, sell-in shipments declined due to growing pressure from channel inventory surge as weak demand continued in 2Q.
For tablets, shipments declined more than expected level due to weak overall market demand and, unlike smartphone, lack of carriers' subsidies policy led to low replacement demand.
The demand for 5-to-6 inch smartphones also cannibalized the demand for 7-to-8 inch tablets.
Therefore, the second quarter earnings were negatively affected by substantial increase of marketing expenses from the previous quarter due to strong sell-out promotion to reduce channel inventories in addition to marketing promotions for new smartphone and tablet launch.
The weak demand for smartphones also affected the System LSI and the display businesses that provide key components, which led to decrease in shipments and lower than expected profitability.
II. Outlook for 3Q
3Q business environment outlook
The Company expects additional appreciation of won to be limited compare to the second quarter.
For the IM business, Samsung expects marginal marketing expenses related to inventory reduction in the upcoming quarter, while the Company cautiously expects a more positive outlook in the third quarter led by increased shipments of the coming release of its new smartphone lineup.
Samsung expects increased display panel shipments with higher shipments of IM products to have a positive impact on the earnings growth.
The Company forecasts the portion of Memory business contribution to overall earnings to increase as its performance is expected to improve under favorable seasonal conditions in 3Q.

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