How Does Samsung Make Money?

Samsung Electronics (OTC:SSNLF) is one of the largest consumer electronics and components manufacturers. In this analysis, we discuss Samsung’s business model and review its performance over the last few years and what to expect going forward.

View our interactive dashboard analysis on Samsung Revenues: How Does Samsung Make Money?

Takeaways

• Samsung’s IT & Mobile Communications segment, which primarily sells Mobile devices and networking equipment, is expected to contribute about $86 billion to Samsung’s Revenues, accounting for about 43% of the company’s total revenues of $203 billion.
• The IT & Mobile segment is about 66% higher than the Semiconductor division and about 3x the Display products division.
• The IT & Mobile division is expected to add about $1 billion to Samsung’s top line in 2019, while the Semiconductor division is likely to reduce Samsung’s top line by over $20 billion, due to weaker memory prices.

Samsung’s Business Model

What does Samsung offer:

While Samsung Electronics is best known as a manufacturer of consumer electronic products ranging from Smartphones to TV and home appliances, the company is also a major supplier of components such as memory and display panels.

Has 4 major Operating Segments:

• IT & Mobile Communications: Sells information and communication products such as smartphones and telecom equipment for 4G /5G networks.
• Semiconductors: Produces and sells DRAM and NAND flash memory chips, system large scale integrated circuit (LSI) products, application processors, and image sensors.
• Consumer Electronics: manufactures and sells televisions (TVs), air conditioners, refrigerators, and other appliances.
• Display panels: Sells LCD displays and OLED displays used for TVs, notebooks, smartphones, and other products.

What Are The Alternatives?

• Samsung competes with the likes of Apple, LG Huawei, and Xiaomi in the smartphone and consumer electronics space.
• Samsung’s components business competes with the likes of SK Hynix and Micron in the memory space and Sony in the imaging and sensors space.

What Is The Basis of Competition?

Samsung’s Consumer Electronics products compete on the basis of:

• Price
• Performance
• User Interface and software
• Design and Aesthetics

Samsung’s Revenues

• Samsung’s Revenue has grown from $178 billion in 2015 to $222 billion in 2018, although it is expected to decline to about $200 billion by 2020.
• The Revenue decline of ~$20 billion over 2 years will be driven primarily by the Semiconductor segment, which is being impacted by lower memory prices.

A Closer Look At The Performance of Samsung’s Segments

• IT & Mobile Communications Revenues grew modestly from about $82 billion in 2015 to about $85 billion in 2018, driven by higher Mobile sales, although we expect Revenues to decline slightly going forward.
• Semiconductor Revenues grew from about $38 billion in 2015 to $73 billion in 2018, driven by strong DRAM and NAND pricing, they are likely to decline to under $50 billion by 2020 as memory prices have corrected.
• Consumer Electronics Revenues declined from about $37 billion in 2015 to about $36 billion in 2018, driven by lower TV sales. We expect Revenues to see a moderate increase going forward.
• Display Revenues grew from about $22 billion in 2015 to $27.5 billion in 2018 on account of stronger LCD sales. We expect Revenues to rise to close to $29 billion by 2020.

For more details on Samsung’s segment revenues, view our dashboard analysis Samsung Revenues: How Does Samsung Make Money?

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