Categories

Samsung Electronics Segment Revenues and Operating Income in Context

As first introduced last week, Samsung’s revenues have grown primarily due to the expanding volumes of smartphones. In today’s post I convert the revenues and operating incomes to US Dollars and compare them to a set of companies.

First, I should note that Samsung has changed both the designation of its divisions and the way it reports revenue. Broadly speaking, Samsung Electronics has four major divisions:

  1. Semiconductors. This includes memory products as well as systems such as CPUs.
  2. Display products. This used to be called “LCD” but has been re-named Display Products.
  3. Telecom. This is mainly mobile phones but includes additional products and services for telecom operators and PCs. The division has recently been re-named IM (IT and Mobile communications).
  4. Consumer Electronics. This group has changed names from Digital Media and Appliances to CE. The majority of sales value comes from televisions but also includes consumer electronics and appliances.

The company further combines Semiconductors and Display Products into a group called DS (Device Solutions) and Consumer Electronics and IM into DMC (Digital Media & Communications).

I tried to reconcile these various nomenclatures with color coding in the following graph. Semiconductors are blue, Display components are red, Consumer Electronics are Yellow and Mobile are grey.

Each gridline represents $10 billion.

One more point to note about revenue recognition: Relatively recently the company has switched from reporting consolidated revenues to gross revenues. This means that current sales include inter-segment sales. So, as much as it is possible, the data above shows sales from division to division as well to external customers.

When it comes to reporting operating income, the company offers four segment values: Consumer Electronics (Appliances, TV, “Digital Media”), IT and Mobile (including mobile phones), Display Panel (formerly LCD), and Semiconductor.

I used the same color coding to show the income values in the same scale as the graph showing income:

It’s now possible to compare Samsung Electronics with Google, Microsoft and Apple in terms of divisional (as a proxy for product-line) revenue and profitability over a five year period.

At this time, a portion (majority?) of Samsung’s grey area in the operating income graph represents the vast majority of profits obtained from Android across the entire ecosystem.

  • http://twitter.com/jonathanoberg jonathan oberg 

    Interesting that their semiconductor unit’s revenue and profit hasn’t scaled with mobile since we know Apple sources from them and presumably their mobile unit does as well. All the revenue and profit are accruing to the integrators even within a company.

    Suggests bad fortunes ahead for Intel and other component makers that captured the bulk of the PC era profits.

  • Ittiam

    Of the four, only Samsung does not have eco-system advantage for sustained profits… They have to keep innovating must faster to maintain the profits (which is hard) or try and build an eco-system, which is equally hard

    • Klasse

      Yes, their competitive advantage does feel very temporary. Nokias decision to stick with Symbian and meego for so long was due to that they considered the platform to be crucial for sustained advantage.
      If Samsungs core competence is in distribution and marketing, they are perhaps best compared with eg. CocaCola and Pepsi.

      • newtonrj

        I disagree. Samsung is learning, To make money, to differentiate just enough, and by playing against APPL, they are able to be in more places selling more handsets while still claiming to be under-dogs. Samsung is getting better at copying. APPL is changing tact fast enough to make it interesting. Would MSFT or NOK or RIM or MOT/GOOG do better?
        -RJ

      • Peter

        The key questions is; what is Samsung doing that cannot easily be copied by another manufacturer? Right now I think their advantage is some combination of technology, scale and logistics integration (it is clearly not control over the platform and they pay considerable ‘rent’ to the retail channel). As noted above, it does not seem like this is enough for a long term edge over the competition.

      • http://twitter.com/WalterMilliken Walter Milliken

        I think the question is: can they buy their way into the channel for just long enough to force out everyone but Apple and maybe Nokia?

        I’m reminded of the cutthroat cell company wars over marketshare in the US, to try to hang in long enough to be one of the last competitors left standing (which is now VZ, AT&T, and maybe Sprint and T-mobile). Originally there were dozens of competitors. Now, only a few of the small fry are left and they mostly don’t matter (rural coverage the big guys don’t want to pay for the infrastructure for), plus a few MVNOs who ride piggyback on the big carriers. It seems to me we’re seeing much the same sort of thing in the hardware vendors now.

      • Klasse

        Yes, i agree. If the smartphone market becomes an oligopoly then Samsung could be in a good position. However, at this point that seems unlikey. We have vendors such as Huawei and ZTE that have articulated very ambitious plans to capture share in the smartphone market and are growing quite fast. Also, these companies are clearly prepared to sacrifice margins in order to capture share. I just can’t see how Samsung can differentiate enough on the product level to sustain high margins as it is using a commoditized OS. I believe that the length of Samsung’s position as king of the Android hill depends primarily on how long the distribution and marketing advantage the company has remains relevant as a factor of differentiation.

      • Walt French

        Gotta take these ambitions with just a grain of salt. Top-tier status requires huge amounts of capital, branding, engineering, manufacturing capacity, distribution, …

      • Hamada

        You must remember that Samsung has a very strong name brand while Huawei and ZTE do not stand a chance against Samsung, and that has tremendous weight in retail business. Samsung’s TVs are even superior to Sony’s, which was once thought as king of TV sets, and customers already know it.

        When average Joe walks in a retail outlet, and in most cases most of them have predetermined their purchase decision as to get Apple or Sumsung, the undecided ones will be hardly impressed in even considering Huwaei or ZTE, because they just want what the Jones have, with bigger and sleeker design, which means Samsung at the end of the day. What we are seeing is a repetition of the pc era, where people were buying not because of needs, but because of wants. The smaller players have no chance no matter how hard they try, because it is already a mature market, there are more smartphones then people on this planet! Even the pc market at its hype never experienced such market fast growth in such short time.

      • Says Joe

        Nokia had the best brand in mobile phones, that hasn’t saved them. IBM was the computer business until Compaq came along and offered ‘as good but cheeper’. And as you mention their’s Sony and tv’s.

        Samsung better hope it dosn’t turn out like the PC buisiness because the only companies making any real money there, don’t make PCs

      • http://www.asymco.com Horace Dediu

        You point out in your first paragraph the problem with your argument. Sony was once king and its brand was very strong. There was a time when Samsung “did not stand a chance” against Sony. So the question should not be who is strong and who is not but how does one who is not strong become strong and how does one who is strong become weak. Wealth will follow wisdom if you can tell how long this takes.

      • newtonrj

        It certainly isn’t being copied by MOT, RIM, NOK, or MSFT. I argue they did not have anything competitive until GOOG gave them Android. The rent is cost-of-business. Certianly it is a profitable approach. And they are killing the competition (except APPL).

      • Walt French

        @Peter wrote, “what is Samsung doing that cannot easily be copied by another manufacturer?”

        For one, advertising like mad. When a customer walks into a phone store, and both the Samsung and HTC look about the same & cost about the same, which will they pick?

        The eventual question is how valuable this brand identification will be. If the market goes through another paradigm shift (say, more voice-centric and/or much smaller), the branding might be as valuable as “Microsoft Windows Phone” (i.e., not). More likely, I’ll guess, Samsung will be seen to have been VERY smart in getting people to at least ask, “how would that compare to a Samsung phone?” when they shop, which will turn the shopper’s choice from “which one of n phones” to buy, into “Apple, Samsung or something else?”

        Yes, they certainly have shown ability to deliver technology at huge scale, and maybe by not having to put so much energy into any one retail outlet, they seem to have ubiquitous availability.

      • SSShu

        “For one, advertising like mad. When a customer walks into a phone store, and both the Samsung and HTC look about the same & cost about the same, which will they pick?”

        Of course the one with the biggest kickbacks! When in doubt – people will defer to authority figures or experts and in this case – the sales people (for those who do not frequent tech review sites).

      • BoydWaters

        Brand identification versus Kickbacks…

        Way back in April 2012 I needed help with my iPhone’s AT&T service. The AT&T retail location was packed with elderly pensioners. During my 30-minute wait, I watched every other customer in the store receive the hard sales pitch for the Android phones. They trotted past the wall of display units with the sales staff, yet at the sales counter, they asked for the “iPhone”. I watched this happen at least five times. It was uncanny; I saw eight iPhones walk out of the store in 30 minutes (some customers purchased two of them).

        A silly anecdote, to be sure, and no match for raw numbers. And clearly kickbacks (cash or other incentives directly to sales staff) fall under Samsung’s “marketing” budget.

        But I didn’t see any customers swayed by the “expert” opinions of the people at the retail locations.

  • RobDK

    Given that Samsung’s revenues and operating income is so much larger than Google’s, maybe they should just buy Google. Then they would own Android, and could do what they wanted….

    • http://www.facebook.com/people/Carlos-Carbajal/620312515 Carlos Carbajal

      They can do what they want with Android now without having to buy Google. Amazon is doing exactly that now with the Kindle Fire.

      • http://www.isophist.com/ Emilio Orione

        That’s not correct, buying google is not like using open source code at will.
        First Amazon had to fork android and its o.s. is not called android and can not claim android’s compatibility. Commercially there is a difference.

        Second there is the developing skill, talent, that is not easy to find. Acquiring google would mean to acquire the talent behind android and going from there.

      • newtonrj

        . . . And the patents Motorola trying to cover Android with.
        I agreed, partailly with Carlos Carbajal. Google seems happy to have Samsung collect profits as well as stand in as legal proxy to Android. If Samsung were to buy the Android team, Motorola would have to pay Samsung patent payoffs to make Android.
        Plus, we would miss all those Andy Rubin tweets. But the data from Samsung is better than the absence of data from Google.
        -RJ

      • http://www.noisetech-software.com/Home.html Steven Noyes

        Lets see Samsung put a competing locations services on their handsets and see how far that goes.

        There are very serious limits to what Samsung can do to Android and still get access to things like the Play store and navigation.

    • http://twitter.com/WalterMilliken Walter Milliken

      They would also have some serious anti-trust issues, I suspect, and it’s not clear to me if they’d gain enough for the cost. I also wonder about NIH syndrome and possibly Korean nationalism — I suspect they may favor building up capability in-house rather than try to manage an entirely separate US engineering team. Google also isn’t very strong in some of the markets Samsung seems to do well in, like China. So it doesn’t seem like entirely a good fit, to me.

      • http://twitter.com/shm224 shm224

        Not sure where/why NIH or Korean nationalism fits in here? In general, software engineers aren’t regarded highly in Korean culture (or in Samsung’s hierarchy), not necessarily b/c of NIH syndrome, but b/c Samsung’s success is largely built on their commodity IT hardware (memory, display, etc) businesses.

  • Pingback: Samsung coraz bardziej upodabnia się do Apple()

  • http://www.isophist.com/ Emilio Orione

    There is a huge disproportion between the ratio operating income/revenue of apple and samsung with regards to handsets.

    In the preceding post, the cost of selling galaxies, you showed the incredible high marketing costs of samsung and that can explain the difference, but even subtracting marketing costs samsung seems to spend a lot less to build its phones in confront with apple.

    If we assume that the supply chain is equally well managed by apple and samsung a galaxy should cost 1/3 of an iphone to be produced, given your numbers Horace, is this possible?

    • http://twitter.com/WalterMilliken Walter Milliken

      I don’t know the details, but from what I’ve seen of the hardware descriptions, I make a ballpark guess that Samsung’s basic hardware costs are around 50-70% of Apple’s. However, they’d also recover some of that elsewhere as profit in their component business, since they buy most pieces internally. (Components also makes money off Apple, of course, but I’ll bet they give themselves better component prices than they do Apple, unless they’re playing money-shuffling games.)

      • Tatil_S

        Why would GM of components unit give away his profits to GM of handsets business by pricing its products below what it charges Apple?

    • KirkBurgess

      Most of samsungs handsets retail for less than $200, and are made of low priced/low quality components.

      • http://www.isophist.com/ Emilio Orione

        That’s true, but big earnings for samsung started roughly one year ago with galaxies sold like direct iphone competitors with same price.
        Before that, with the low price handsets margin were low even with high volumes.

  • Tatil_S

    I know it is not the main focus of this blog, but what happened to appliance revenue during the last three quarters? It seems to have shrunk quite a bit all of a sudden.

    • http://www.asymco.com Horace Dediu

      It’s an illusion due to change in naming from Appliances to consumer electronics (excluding video). I should have re-arranged the order of the series to show the continuation.

      • Tatil_S

        Actually, I am looking at “CE ex video” and Appliances. After the holiday quarter, there is a big drop in CE ex video (dirty orange), whereas appliances revenue was more stable during the previous 4 quarters (bright orange) and growing rapidly during the earlier five quarters.

  • oases

    How did Lenovo eat into Samsung’s share in China? Spiffs?

    • http://www.asymco.com Horace Dediu

      Lower price to channel. Lenovo decided to sell at a loss. Samsung still maintains a margin on most sales.

      • oases

        ‘Lenovo Chief Executive Yang Yuanqing said recently that the company hasn’t been able to generate a profit in smartphones in part because of its investment in marketing and sales. He expects the business to become profitable in China in two to three quarters, he said.’

        Sounds like there’s something other than undercutting going on.

      • Tatil_S

        You can easily count price cutting under the heading of marketing and sales promotions. It sounds better than we are selling at a loss to build market share. I would not rule out undercutting based on this one vague statement.

  • DesDizzy

    Great chart. I think this Sammy issue and how it plays out with Google is very interesting re business strategy/innovation and could do with further analysis.

    Re JO’s comment, I presume that when Apple agreed semiconductor deals with Sammy, Apple was in a stronger position and they were much weaker and therefore they have been tied into a deal with low margins for some time.

  • Pingback: Samsung’s Capital Structure | asymco()

  • Pingback: 图表展示真实三星的獠牙 - 品谷()

  • http://twitter.com/Statista_Inc Statista Inc.

    Is it by any chance possible that you converted trillion won 1:1 to billion dollars?

    Samsung reported revenues of 52.8, 47.6 and 45.3 trillion won for the past three quarters, which looks an awful like the numbers your chart is showing in (supposedly) U.S. dollars. When I convert 52.8 trillion won into U.S. dollars, I get around $44 billion for the past quarter which you chart clearly does not show. Any chance of a mix-up here?

  • http://twitter.com/CashGap Sam Shallenberger

    Where are printers, copiers, multi-function devices reported?