Samsung Electronics and LG Electronics 3Q Earnings, Commonalities and Differences

[이코노믹리뷰=박정훈 기자] On the 28th, Samsung Electronics and LG Electronics announced their finalized results for the third quarter. The two companies had something in common in that they achieved their own performance improvement through their top flagship businesses despite internal and external adverse events such as the global supply chain disruption and COVID-19.

There was also a crucial difference in the performance of the two companies in the third quarter. It is a ‘reflection of anxiety factors’. LG Electronics relieved anxiety by pre-recording of provisions related to electric vehicle batteries, while Samsung Electronics’ earnings were not yet reflected in the earnings of Samsung Electronics due to the price fluctuations of memory semiconductors expected in 4Q.

Semiconductors and home appliances take center

In the case of Samsung Electronics, among all business divisions, performance improvement was achieved, and it was the semiconductor that stood out in particular. Samsung Electronics’ semiconductor business (DS, Device Solutions) recorded 26.41 trillion won in sales and 10.06 trillion won in operating profit in the third quarter. Compared to the previous quarter, sales increased 16% and 40% compared to the same period last year. Operating profit increased 45.16% compared to the previous quarter and 81.58% compared to the same period last year.

Source = Samsung Electronics
Source = Samsung Electronics
Source = LG Electronics
Source = LG Electronics

Regarding this improvement in performance, Samsung Electronics said, “Memory semiconductors actively responded to demand mainly for servers, and DRAM achieved the highest quarterly shipments and second-ever sales. The performance improved significantly due to cost reduction, and the foundry (semiconductor consignment production) improved its performance by expanding the supply of products to global customers.”

It is almost inconspicuous that the sales and operating profit of the consumer electronics (CE) and wireless (IM) divisions decreased slightly compared to the previous quarter and last year due to improved semiconductor performance.

In the case of LG Electronics, the home appliance business, its top flagship business, offset the negative factor in the battery provision to some extent. In the third quarter of this year, LG Electronics’ H&A (Home Appliance & Air Solution) business division recorded sales of 7.6 trillion won and operating profit of 505.4 billion won, while the HE (Home Entertainment) business division recorded sales of 4.18 trillion won and operating profit of 208.3 billion won. did.

H&A’s sales were at an all-time high for the quarter, up 14.7% year-over-year. LG Electronics explained, “The H&A business division in the third quarter of this year is the first time that a single division’s quarterly sales exceeded 7 trillion won.” The HE division’s sales grew by 13.9% compared to the same period last year, and it continued to record 4 trillion won in sales for the last four consecutive quarters. Despite the gradual slowdown in global TV demand and rising LCD panel prices, the HE business division increased sales of premium TVs while maintaining solid profitability through efficient resource management and cost structure improvement. In particular, shipments of OLED TVs doubled compared to the same period last year.

LG Electronics’ performance improvement in the home appliance sector also made up for the operating loss of the electronics (VS) and business solutions (BS) divisions.

Whether differences and anxiety factors are reflected

LG Electronics has set a provision for the recall cost related to the battery fire problem of GM’s electric vehicle ‘Volt’ and reflected this as an operating loss in the electric vehicle division. In the third quarter, LG Electronics’ electronics division recorded an operating loss of KRW 537.6 billion, with provisions of KRW 480 billion reflected. Without this provision, the operating loss would be reduced to KRW 57.6 billion. This is a very disappointing part for LG Electronics, which aims to turn the electronics business division into a surplus within the year. However, sales of KRW 1.735.4 trillion, up 4.8% from the same period of the previous year, were positive thanks to the good performance of subsidiaries.

An electric vehicle powertrain produced by Samsung Electronics' 14nm DRAM (left) and LG Magna e-Powertrain.  Source = each company
An electric vehicle powertrain produced by Samsung Electronics’ 14nm DRAM (left) and LG Magna e-Powertrain. Source = each company

Regarding LG Electronics’ electronics business, the investment industry said, “The worst anxiety factor has been alleviated in the third quarter, and orders from each subsidiary are also increasing thanks to the increasing demand for electric vehicles, so we will be able to turn to a profit within the year or produce close to that. ” has a positive outlook.

In the case of Samsung Electronics, the instability of memory semiconductor prices, which has been continuously raised by the investment industry, was not reflected in 3Q earnings. If the investment industry’s forecast is correct, it is highly likely to be reflected in Samsung Electronics’ semiconductor business in 4Q. Considering that memory accounts for about 70% of Samsung Electronics’ semiconductor business, a decline in the price of memory semiconductors is clearly a bad news.

Regarding the concerns of some, Samsung Electronics said, “The memory demand risk is expected to increase due to the prolonged issue of parts supply and demand compared to the initial expectation.” We plan to actively respond to changes.”

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