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Samsung Electronics Results Q4 2014

Summary and Commentary (Based on Samsung’s audited accounts released 13th March 2015, in KRW and USD)

Note: Samsung Q4 = Calendar Q4

The following slides are in USD, as reported by Samsung, or where not reported converted from KRW at the same effective rate reported for KRW vs USD Revenues

This provides the most relevant comparisons with global technology companies.

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Samsung Electronics

•Samsung Electronics is the largest company within the Samsung Group, a “Chaebol” conglomerate based in the town of Samsung, in South Korea.

•Samsung Electronics comprises three main divisions, one of which is usually reported in two parts. These are:

•Device Solutions, which includes:

•The Semi-conductor Division, abbreviated to “Semi”

•and the Display Panel Division, abbreviated to “DP”

•Consumer Electronics Division, abbreviated to “CE”

•IT & Mobile Communications Division, abbreviated to “IM”. This includes the smartphone and tablet business.

•In 2013, Samsung Electronics accounted for 64% of the revenue and 92% of the Net Income of Samsung Group

•This report focuses entirely on Samsung Electronics

AquillaSource: Samsung Electronics Results

Net Profit

App

le $

18B

Net Profit Declines •Net Profit crashed 39%

from its peak in the year ago quarter, to $4.9B, and to 10% of revenues, down from 12.5%

•Samsung is structurally behind Apple in margins, whose net profitability was 14% higher at 24% of sales

•Samsung’s profitability has also now fallen behind both Google and Microsoft

Comparative Net Income CQ4 2014

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gle

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ft

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27%

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Net Profit (%)

Net Profit (B$)

Samsung Electronics Net Profit

Net Profit B$ Net Profit %

AquillaSource: Samsung Electronics Results

InventoryInventories Jump Upwards •Samsung had warned of excess

inventory for Q3, and appears to have successfully addressed this in Q4, as the company exited the quarter with 30 days of stock, down from 36 in September

•However this contrasts dramatically with Apple’s, who reported less than 3 days at the end of the same quarter

•The bulk of this stock is likely to be in smartphones and their components, most of which also belong to Samsung (unlike Apple, which pushes ownership back up the supply chain)

•In the fast-moving electronics business, excess stock is typically very damaging, as it ages quickly

•Failure to get better control of stock will lead to ongoing pricing actions and increased sales promotion spend. Such actions tend to prove disruptive to the overall business, and in particular to the channel

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Days of Stock

Inventory (M$)

Samsung Electronics Inventory

Inventory M$ Days of Stock

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Tablet vs iPad: Still BehindTracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and

gives a better indication of the longer term trends

Source: Apple Results, Gartner, IDC and others

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Trailing 12m Units (000s)

Q Units (000s)

Tablet Units vs iPad

Tablets kU Tablets Trailing 12m kU Apple iPads Trailing 12m kU

AquillaSource: Samsung Electronics Results

Regional SplitsRed Ink Everywhere •Sharp declines were

reported in every region Home Market Drops •South Korea declined

19%, with Apple the main beneficiary

America Turns •The Americas saw a

second quarter of decline, but it remains Samsung’s largest region

Europe Fades Further •29% YoY growth in 2012

has given way to big declines in 2014, with another sharp drop in Q4

Asia/Africa Reverses •Even the promising Asia/

Africa region posted a sharp decline

China Worrying •Massive 44% growth in

2013 has reversed catastrophically in this critical region, with the sharpest decline of all

Most recentShare YoY

8% -19%

38% -15%

22% -31%

17% -25%

14% -34%China B$

Asia/Africa B$

Europe B$

America B$

South Korea B$

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Regional Splits

AquillaSource: Samsung Electronics Results

Samsung Galaxy S6Galaxy S6 / S6 Edge Announced at MWC •Samsung announced the next generation of its Galaxy

smartphones at MWC on 1st March, to ship from 10th April •Galaxy S6 is the mainstream 5.1” device •Galaxy S6 Edge adds curved edges to the screen, but was

positioned as less mainstream, with premium pricing •The new Galaxy’s have discarded the plastic feel in favour of a

more Apple feel - rounded edges, matched with glass both front and back (a blend of iPhone 4 and 6?)

•However a glossy finish on the back has attracted some criticism, suggesting it detracts from the overall design

•Impressive specifications: a 64 bit Exynos processor made by Samsung’s own semi-conductor division (hence no longer using Qualcomm chips)

•These are built on its new 14nm process - stepping ahead of the 20nm standards seen elsewhere (including in Apple’s A8)

•Wireless charging, new fingerprint sensor, 2,560 x 1,440 pixel screen and upgraded cameras also feature

•Discarded: waterproofing, removable battery, microSD slot - were these really desired by customers?

•Pricing TBC, but rumoured to be very similar to iPhone •Overall: a quality product, but still based on Android: many

Chinese vendors will aim to match the features at half the price Mid iPhone Cycle Launch Creates Opportunities •With the iPhone 6 having had a clear run for two quarters, the

new Galaxy’s will mount a serious challenge through Q3 and Q4 •However many other vendors launched products at MWC,

including Acer, HTC, Lenovo, LG, Microsoft, Sony, and ZTE

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Samsung’s Q4 Results Analysis - Full Slide Deck

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Samsung’s Q4 Audited Results Analysis

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