Affiliates suffer losses despite Samsung Electronics` best-ever performance

In the third quarter of the year, Samsung Electronics earned a “triple crown” by making the best record in sales and operating profit. Despite this astonishing achievement, Samsung Group is facing a problem because its other affiliates are still in a slump, making the group’s dependence on Samsung Electronics more significant.

According to Samsung on Sunday, most of its manufacturing affiliates that announced third-quarter earnings recorded decreases in both sales and operating profits compared to the same period of last year except for Samsung Electronics. Moreover, the earnings of companies supplying parts to Samsung Electronics have weakened, raising the alarm for the conglomerate.

The third-quarter sales of Samsung Electro-mechanics, a parts supplier, were reduced by 2.9 percent, or about 2.12 trillion won, year-on-year and its operating profits by 10.7 percent. In the case of Samsung SDI, profitability significantly worsened as its sales and operating profit decreased by 13.7 percent and 66.3 percent, respectively. For Samsung Display, the sales and operating profit decreased by 4.3 percent and 16.2 percent, respectively. Even Samsung Fine Chemicals, a chemical company that had focused on promoting electronics materials, recorded a 12.1 percent decrease in sales and an 86.4 percent decrease in operating profit.

Such weak earnings of Samsung affiliates supplying parts to Samsung Electronics can be explained by the sales distorted by smartphone sales. In Samsung Electronics, 60 percent of the sales and 65 percent of operating profit come from the mobile business. Although Samsung Electro-mechanics, Samsung SDI and Samsung Display recorded good results in the mobile sector, others sectors including TV and PC have been affected by declining demands in the global market. Market research agencies, such as DisplaySearch and Gartner, forecast that the global TV and PC markets will shrink this year by 4.8 percent and 11.2 percent, respectively compared to last year.

Samsung SDI recorded a 22.0 percent decrease in sales in its PDP business. In fact, Panasonic from Japan was unable to weather declining demands and has already closed its PDP business. Samsung SDI is also facing difficulties due to slow progress in the vehicle fuel cell market, which the company has promoted as its next-generation business. Samsung Display registered an increase in the sales of OLED panel, but declining demand and prices of LCD panel aggravated its profitability.

In addition to this, Samsung Engineering in the construction and heavy industry announced a lower-than-expected performance with 746.7 billion won in deficit for the third quarter. The sales and operating profit of Samsung Heavy Industries also decreased by 11.9 percent and 36.7 percent, respectively.

The sluggish performance of these parts and materials suppliers who are supposed to back up Samsung Electronics partly explains Samsung’s aggressive drive for M&A’s with parts and material companies. Samsung Group intends to enhance its overall competitiveness in electronics business through these efforts.

An official from Samsung Group said, “(The Group) is reviewing ways to enhance the long-term competitiveness of its affiliates with its focus on electronics business and to restructure businesses that lag behind and fail to be a global leader.”