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Samsung says it will not reduce chip investments despite losing Apple's business

post #1 of 21
Thread Starter 
While reporting record profits of $6.5 billion for the winter quarter, Samsung issued a statement saying it did not plan to reduce its CapEx investment despite the realization that it would gradually lose Apple as its largest components customer.

Samsung Electronics, which includes the company's PCs, mobile products and chip and screen production, earned (correction: the article previously overstated Samsung's earnings by citing operating profit, not net profits) $6.5 billion in net income on $52.45 billion in revenues for the quarter, compared to Apple's $13.1 billion in net income on $54.5 billion in revenues.

For the same quarter, Google reported $2.9 billion in net income on $14.4 billion in revenue, while Microsoft announced $6.38 billion of net income on 21.46 billion in revenue.

While outperforming all of its peers, Apple is the only stock to have dropped significantly after reporting earnings.

Apple and Samsung



Apple has long worked closely with Samsung to source SoCs, RAM and other components for its iPod and iOS devices. After becoming the world's largest consumer of RAM to build iPods, Apple turned its attention toward more sophisticated devices with the iPhone and iPad, both powered by ARM chips modified by Apple but fabricated by Samsung.

A5 evolution


However, beginning in 2009, Samsung's semiconductor subsidiary launched an investigation into how to cheaply duplicate Apple's efforts, and subsequently its phone subsidiary began an intense three month effort to copy the iPhone, as revealed last fall in the lawsuit between the two companies.

After a verdict was reached in that case, Samsung executives held in an emergency meeting that emphasized the existence of a "strict internal firewall" between its component supply business and handset operations, erected to "avoid potential conflicts of interest" with customers like Apple.

Persistent rumors have indicated Apple has been working to shift its component orders away from Samsung, from its A series SoC chips that serve as the central processor for iOS devices to display screens, RAM and other components.

iMacs


While Samsung has reportedly passed Apple as the top consumer of chips globally, losing Apple's business means that Samsung's production volumes could be slashed. Apple and Samsung represent 15 percent of the entire semiconductors market, a bigger share than the next five buyers combined.

Apple's large appetite for chips and small portfolio of products means that Samsung would have to give up large, consistent and predictable orders that are more profitable than producing smaller batches of different parts for a fragmented variety of smaller players.

Losing Apple's high volume production orders would be incredibly disruptive to Samsung's expansion plans, and would also result in Samsung's own component prices becoming more expensive due to lower volumes.

Samsung already makes relatively little on its semiconductor operations compared to its far more lucrative smartphone business. Losing Apple's orders would not only hurt Samsung's component profitability, but could also drive up its internal production and development costs, undoing the progress it has made in rivaling Apple's smartphone business.
post #2 of 21
Hey, let's make it clear. $8.3 billion = Samsung Electronics operating profit. their net income is $6.6 billion.
Apple net income for the holiday quarter is $13.1 billion. Apple still kicks Sammy's butt.
Samsung Electronics makes all kinds of stuff, smartphones, old style phones, TVs, washing machines, notebooks, tablets, MP3s, chips, refrigerators, etc, etc.
post #3 of 21
Qualcomm is taking up Samsung's spare capacity for their LTE modems and Snapdragon SoCs, so there shouldn't be much of a problem for Samsung.

Apple in turn buys these Qualcomm modems for the iPhone and iPad..
post #4 of 21
Originally Posted by 69ergoo View Post
Hey, let's make it clear. $8.3 billion = Samsung Electronics operating profit. their net income is $6.6 billion.

 

Am I reading this backward? How can their profit be higher than their revenue?

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already fucked.

 

Reply

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already fucked.

 

Reply
post #5 of 21
Quote:
Originally Posted by Tallest Skil View Post

Am I reading this backward? How can their profit be higher than their revenue?

Their revenue was $52.45 billion, which is very impressive. I think it makes them #2 behind Apple's recent acheivement as #1 with Exxon coming in as #3 in the mid 40's.

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"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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post #6 of 21
Now where are the Wall Street analysts saying that Samsung is doomed when
Apple officially cuts off all their business to them?
post #7 of 21

Exxon Mobile revenues for Q4 2012 should be round about 125 bn $.

Revenues for 2012 may reach 480 bn $ and earnings may reach 36 bn $.

 

Apple's pro forma 2012: 164,6 bn $ revenues and 41,7 bn $ earnings.

 

Samsung Electronics' numbers: some 188 bn $ revenues and 23,5 bn $ earnings.


Edited by smalM - 1/24/13 at 6:33pm
post #8 of 21
Quote:
Originally Posted by SolipsismX View Post


Their revenue was $52.45 billion, which is very impressive. I think it makes them #2 behind Apple's recent acheivement as #1 with Exxon coming in as #3 in the mid 40's.

Good balanced perspective. But I think Exxon trumps Apple in rev. You might be thinking of their net income.

post #9 of 21
Quote:
Originally Posted by 69ergoo View Post

Hey, let's make it clear. $8.3 billion = Samsung Electronics operating profit. their net income is $6.6 billion.
Apple net income for the holiday quarter is $13.1 billion. Apple still kicks Sammy's butt.
Samsung Electronics makes all kinds of stuff, smartphones, old style phones, TVs, washing machines, notebooks, tablets, MP3s, chips, refrigerators, etc, etc.


That's exactly right. 7.04 trillion won, or approximately $6.6B in Net Income. That's the number to compare against Apple's $13.1B.

Fix your numbers, AI, and please don't put out misleading data.

(Corrected my wording! Thanks, TS.)
Edited by anantksundaram - 1/24/13 at 7:02pm
post #10 of 21
Quote:
Originally Posted by stelligent View Post

Good balanced perspective. But I think Exxon trumps Apple in rev. You might be thinking of their net income.

Quite possibly. I'm only going by what I believe I read yesterday. I have not done any supplemental research to assert the info as fact.

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply
post #11 of 21
Originally Posted by anantksundaram View Post
Fix your numbers, AI, and please don't throw out misleading data.

 

To clarify, don't throw it out there, but do throw it out. Though they should be more thorough before they throw up some numbers in the future, otherwise we might all throw up.

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already fucked.

 

Reply

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already fucked.

 

Reply
post #12 of 21
Quote:
Originally Posted by Tallest Skil View Post

Am I reading this backward? How can their profit be higher than their revenue?

It isn't.

The numbers he gave for Samsung are (I'm not vouching for the numbers because I haven't looked them up and don't care to):
Operating Profit - $8.3 B
Net Income - $6.6 B

He didn't say anything about revenues (someone else posted that Samsung's revenues were around $52 B).

Here's the way it works:

Revenue - amount of money received

COGS - amount of money required to produce goods or services sold to customers

Gross margin - Revenue minus COGS

Overhead - Fixed expenses to run the business. Management (most management, anyway), sales, marketing, R&D, etc

Operating Profit - Gross margin minus overhead

Net income - Operating profit minus extraordinary expenses

Net income is frequently much less than operating profit - as is the case here.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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post #13 of 21
Quote:
Originally Posted by jragosta View Post

Net income - Operating profit minus extraordinary expenses 

 

Plus interest income and minus taxes.

post #14 of 21
Every time I read these articles on Samsung it turns my stomach that such a blatant copycat company gets away with the crap they pull. When are the courts around the world going to make up and slap these bitches down. A clear message needs to be sent around the world that it is not ok to steal. But of course we should be starting with our own financial institutions.
post #15 of 21
Quote:
Originally Posted by smalM View Post

Apple's pro forma 2012: 164,6 bn $ revenues and 41,7 bn $ earnings.

Samsung Electronics' numbers: some 188 bn $ revenues and 23,5 bn $ earnings.

So basically Samsung copies Apple's products, just not their earnings model. Got it.
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post #16 of 21
Quote:
Originally Posted by PhilBoogie View Post


So basically Samsung copies Apple's products, just not their earnings model. Got it.

 


I'm pretty sure Samsung is also happy not to copy Apple's stock performance either.

post #17 of 21
The Galaxy S is, in the market, looking like it's kicking the iPhone's butt. But my mom and sister picked this phone up for $49 a piece. Are you sure there isn't any dumping going on there? Losing Apple's high volume production orders would be incredibly disruptive to Samsung's expansion plans, and would also result in Samsung's own component prices becoming more expensive due to lower volumes. If Apple's knock-off clone maker loses volume, then it's costs per unit are going to go up. Sure, Samsung might have a "firewall" between the divisions now -- but when Samsung made $22 Billion with the THREAT of losing $1 Billion on a lawsuit, while Blackberry and Microsoft's smart phone businesses are operating at a loss -- it still looks like it's a "no brainer" that clone and lawyer up is the way to go. However the ONLY real threat to Samsung is that OTHER electronics companies with cutting edge devices may look elsewhere. If you are producing last years tech at bargain prices -- then Samsung is still your home. I'm really hoping this brings the sweat-shop clone maker some pain. I really do.
post #18 of 21
Quote:
Originally Posted by zippy2shoes View Post

 


I'm pretty sure Samsung is also happy not to copy Apple's stock performance either.

 

Sounds like the anti global warming crowd with their two data point predictions. Sheesh!
Apple's stock has been the best performer I've heard of over the last few years -- but I'm sure you made this wisdom after the "slower earnings" prediction made the stock lose a bit of steam. But really, slamming Apple stock is kind of silly.
post #19 of 21
Quote:
Originally Posted by PhilBoogie View Post

So basically Samsung copies Apple's products, just not their earnings model. Got it.

 

I'm happy that Samsung doesn't copy everything that Apple does in order to get their high profit margins.

 

E.g. It's nice that Samsung usually has a microSD slot, instead of charging for memory the way Apple does.

 

- The 32GB iPhone 5 only costs Apple ~$10 more than the 16GB model, but Apple charges $100 more.

- The 64GB iPhone 5 only costs Apple ~$31 more than the 16GB model, but Apple charges $200 more.

 

I don't understand people who praise a company for making so much extra profit off their customers, especially when the majority of that extra profit isn't even used towards new products or employees or charity or taxes or anything except hoarding.  It's not like they're a starving startup.

post #20 of 21
Quote:
Originally Posted by KDarling View Post

I don't understand people who praise a company for making so much extra profit off their customers, especially when the majority of that extra profit isn't even used towards new products or employees or charity or taxes or anything except hoarding.  It's not like they're a starving startup.

I wish they would raise their prices even further, make the iPhone $1199, iMacs over 2k and ask 6k and up for their MP. That way we'd have less whiners on this price model Apple has.

Really strange to compare SD Cards with NAND flash. You're an engineer who ought to understand the difference, you're smart enough to understand why Apple doesn't put a card reader in their mobile products and you certainly can comprehend that they use their profits for R&D, amongst others.
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post #21 of 21
Quote:
Originally Posted by KDarling View Post

I'm happy that Samsung doesn't copy everything that Apple does in order to get their high profit margins.


E.g. It's nice that Samsung usually has a microSD slot, instead of charging for memory the way Apple does.


- The 32GB iPhone 5 only costs Apple ~$10 more than the 16GB model, but Apple charges $100 more.

- The
 64GB iPhone 5 only costs Apple ~$31 more than the 16GB model, but Apple charges $200 more.


I don't understand people who praise a company for making so much extra profit off their customers, especially when the majority of that extra profit isn't even used towards new products or employees or charity or taxes or anything except hoarding.  It's not like they're a starving startup.

You're making a mistake. You're assuming the starting price is an agreed upon "fair" price so that any upgrades are unfair because the cost of the component is less than you have decided is "fair" for the upgrade.

Try looking at it in a more rational way. Assume Apple will want to make the profit margin for the iPhone product category and they know they will sell x-many 32GB models to every y-many 64GB models. You end up with the low-end model being too low so the high-end model has to make up the difference.

That's how companies market their products. They typically don't sell upgrades at cost. There is an increased component cost but if they sell less of that component than others there is usually diseconomy of scale that may need to be considered. Note I'm including that to cover all bases but Apple sells so many of their devices that they surely have peaks on the economies of scale on pretty much all, if not all, of their components. Still, there is production and having to change up production to produce a different board can result in downtime so that cost will need to be considered even if it marginal.

Bottom line is you can't take the entry level price point of a product and attribute any component changes to how much the upgraded product should cost. That simply isn't they way products are priced in the market.

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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