Samsung’s Q3 Earnings Reflect Mobile Phone Demand

After markets closed yesterday, Apple (AAPL) released its September-quarter results. The results prompted many analysts to raise their price target for the stock. Today, Samsung Electronics also released its September-quarter earnings results. Analysts often compare Samsung and Apple stocks.

However, Samsung’s third-quarter earnings results weren’t as encouraging as Apple’s because of weakness in its semiconductor business. Therefore, Apple stock has risen more than Samsung: today, AAPL is trading 1.6% higher at $247.18, while Samsung global depository receipts are up 0.28%.

Samsung’s third-quarter earnings highlights

In the third quarter, Samsung’s revenue fell 5.3% YoY (year-over-year) to 62 trillion South Korean won ($52.23 billion). Sequentially, Samsung’s third-quarter revenue rose 10.5%, which is higher than the 7.1% growth it reported in the second quarter.

Samsung’s Q3 net profit was $5.40 billion, which converts into a net profit margin of 10.1%. This margin was wider than the previous quarter’s 9.2% but narrower than last year’s 20.1%.

Samsung’s Q3 Earnings Reflect Mobile Phone Demand

Samsung business segment earnings at a glance

Samsung earns 80% of its revenue from its DS (Device Solutions) and IM (IT & Mobile Communications) segments, with IM contributing 42% and DS contributing 38%.

Samsung’s IM segment comprises its mobile phones and networks. In the third quarter, IM revenue rose 17% YoY and 13% sequentially to $25.11 billion. The company attributes the sequential rise to the success of the Galaxy Note 10 and Galaxy A series. The segment’s operating profit also rose YoY and sequentially to $2.5 billion thanks to “product mix improvement and cost reduction after a lineup transition,” according to Samsung.

Samsung’s DS segment includes semiconductors and display panels. In the third quarter, DS revenue fell 23% YoY to $22.87 billion. However, the revenue rose 13% sequentially. The segment’s operating profit was $3.64 billion.

Samsung’s CE (Consumer Electronics) segment consists of its TVs and domestic appliances. CE revenue rose 7% YoY to $9.38 billion in the third quarter, driven by strong premium TV and domestic appliance sales. However, the revenue fell 1% sequentially. The segment’s operating profit in the third quarter was $4.7 billion.

Samsung’s return on equity improves sequentially

Samsung’s RoE (return on equity) was 10% in the third quarter. It was higher than the previous quarter’s RoE of 8% but lower than last year’s 23%. A company’s RoE indicates management’s efficiency in delivering net income from equity capital. It excludes the company’s debt. In the third quarter, Samsung’s financial leverage was 1.36. Its EBITDA margin contracted to 23% from 24% last quarter and 37% last year.