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Samsung And The Consumer Electronics Price War

Posted on Wednesday, Sep 10th 2008

Word is going round that Samsung, a leading NAND manufacturer, is going to take over SanDisk. Due to its low valuation, SanDisk has been the object of acquisition speculation. Last month, there were rumors it was an acquisition target for Seagate.

Let’s take a look at Samsung’s recent financials. The company reported slightly disappointing results for Q2 on July 25. Revenue was $18 billion, up 24% y-o-y and 6% q-o-q. Net income was $2.12 billion, up 51% y-o-y but down 2% q-o-q to miss analyst estimates by $200 million.

However, Samsung is doing better than its rivals in the NAND flash memory market. It maintained its No.1 position in the industry with 42.3% market share and was the only profitable supplier as per iSuppli. It is followed by Toshiba with 27.5% market share and Hynix with 13.4%. And if the SanDisk acquisition goes through, Samsung could strengthen its leadership in the market while reducing its royalty payments to SanDisk. It could also help prevent oversupply by controlling SanDisk’s ventures with Toshiba and Hynix.

Revenues for Q2 in the semiconductor unit were up 7% y-o-y and 4% q-o-q. The iPhone win seems to be helping margin, which was 6%, up from 4% in Q1. We earlier saw how Samsung is a top component beneficiary of the 3G iPhone with its design win for the phone’s Application Processor. In the LCD segment, sales were up 41% y-o-y and 9% q-o-q. Margin was 21%, down from 23% in Q1.

As for mobile phones, Samsung sold 45.7 million units in Q2, up about 22% y-o-y but down 1% q-o-q due to weaker demand in China and the United States. The telecom segment’s sales were up 27% y-o-y and 2% q-o-q but margin dropped from 15% in Q1 to 13%. Samsung now holds about 15% market share, down from 16% last quarter, and is in the No.2 position, behind Nokia with 40% share and ahead of LG with 9.1% share.

Samsung is an interesting company to watch because of its potential as a vertically integrated company that has presence all the way from consumer electronics to chip manufacturing. As the price wars in consumer electronics get tougher, Samsung stands to gain, because it can squeeze all the layers of profit padding that would naturally go into the products if third party suppliers were involved at every step.

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