Not a Rosy Picture for Samsung

samsung-led-tvRecently the announcement of the LED TV’s launch seemed like the first good news after long months of waiting expectations from the industry. After all, during the recent US recession, everybody was expecting the electronics companies to come up with new products, at least as a replacement solution for the market-invading LCD TV’s.

According to Reuters, leading flat-screen TV makers, whose sales are holding up even in the global downturn, are placing bets on TVs using light-emitting diode (LED), hoping the slimmer, more power-efficient sets help them fight falling prices and expand their market shares. Once the preserve of smaller tech gadgets such as toys, music players and mobile phones, the LED-backlit LCD screen technology is creeping into the TV market.

“Going forward, the entire market will shift to LED. LED is the best television technology made available so far,” Sue Shim, Samsung’s senior vice president in charge of visual display sales and marketing, told the Reuters Global Technology Summit this week.

The optimism of the Samsung executives might sound a little bit forced. But the issue is that they have no choice. Even if the advantages of the LED tv’s are undisputable (they consume 40% less energy than the LCD models and have no mercury within), Samsung and other leading brand makers have a long way to go. Whilst the LCD prices have fallen 30% last year, the led tv market is only at the beginning, expected to reach its potential only in 2012 ($1.4 billion sales).

The income statement of Samsung Corning, the main subsidiary (listed in the US), shows a constant decline in revenue and profitability (until June 08, the last Q when the data was available):

  QE Dec-06 QE Mar-07 QE Jun-07 QE Sep-07 QE Dec-07 QE Mar-08 QE Jun-08
Net sales-Samsung Corning Co. 3.0% (21.1%) 0.0% (9.3%) (63.7%) 203.8% 0.0%
Gross profit-Samsung Corning Co. (78.9%) 12.5% (44.4%) (120.0%)   (90.0%) (44.4%)
Net income-Samsung Corning Co.              
Corning’s equity in earnings of Samsung Corning Co.   (105.0%)          
Dividends from Samsung Corning Co.              
Royalty income from Samsung Corning Co.     (50.0%) 0.0% (100.0%)   (50.0%)

 

Even if the OTC share price of Samsung Displays reflect this optimism, the reality is that there will be a relative long period of time during which Samsung must survive on a declining cash flow. So the question is – will it survive? We’ll see.

samsung-display-shares-may-09

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