With prices falling and demand for cSSD stagnating, Samsung's Q4 storage business performed less than expected

Samsung Electronics announced the fourth quarter of 2021 results, the fourth quarter of the consolidated revenue of 76.57 trillion won (about 63.68 billion US dollars), an increase of 24.4% from the fourth quarter of 2020, an increase of 3.5% from the previous quarter, and the consolidated operating profit of 13.87 trillion won (about 11.53 billion US dollars), an increase of 53.26% year-on-year, an increase of 4.82 trillion won from the fourth quarter of 2020, a decrease of 1.95 trillion won from the previous quarter.

Fourth-quarter revenue growth was primarily driven by the terminal business, with sales growth in smartphones, TVs, and home appliances including folding phones. Operating profit in the fourth quarter was lower than in the previous quarter due to Samsung's special bonuses to employees, but operating profit increased year-on-year, driven by the semiconductor business.

Samsung's total revenue for the full year of 2021 hit a record high of 279.6 trillion won (about $232.53 billion), an increase of 18% over 2020, and the operating profit for the whole year of 2021 was 51.63 trillion won (about $42.94 billion), an increase of 43.45% over 2020.

In 2021, Samsung's total capital expenditure reached 48.2 trillion won (about $40.08 billion), of which 43.6 trillion won (about $36.25 billion) was spent on semiconductors and 2.6 trillion won (about $2.16 billion) was spent on display. Storage capital expenditures were primarily used for capacity expansion and process migration at the Pyeongtaek and Xi'an plants, including EUV-based 15nm DRAM and sixth-generation V-NAND to meet market demand for advanced nodes. In addition, the expenditure on behalf of the salary is mainly used to increase the production capacity of the 5nm EUV node.

Storage product prices fell, bit growth fell below guidance expectations, and Samsung Q4 storage business revenue fell sequentially

Total revenue for the storage business was KRW 19.45 trillion ($16.17 billion) in the fourth quarter, down from 20.83 trillion won ($17.3 billion) in the previous quarter due to a slight decline in storage product prices in the fourth quarter and lowerbit growth than the company's guidance expectations. Samsung believes that the overall demand for the server-centric storage business is stable, but the revenue has declined sequentially due to global supply chain issues and lower average selling prices. Given inventory levels and market outlook, Samsung did not aggressively expand sales in the fourth quarter and was therefore below growth guidance.

For the DRAM market, Samsung said both server and mobile demand remained stable. Server demand remains strong due to increased capital expenditures by high-density storage and data center-led enterprises, largely due to the increase in multi-core CPU adoption, which leads to an increase in DRAM capacity per device. As major downstream vendors launch new products and increase the share of LPDDR5, the demand for mobile DRAM remains stable.

For the NAND market, Samsung said that data center customers have strong demand for eSSD, but demand for cSSD has stagnated, mainly due to customer adjustment of inventory and supply chain shortages leading to production disruptions. Demand for eSSDs is expected to remain strong due to increasing investments in data centers. As the chip shortage gradually improves, personal PC demand will also recover, mainly the demand for mobile PCs. For mobile devices, despite the off-season, Samsung expects the trend of high-density storage to continue as downstream manufacturers launch new 5G models in 2022.

Looking forward to the storage business in 2022, Samsung believes that the demand for enterprise storage products is expected to continue to grow as enterprises increase THEIR IT investment. Samsung will increase the supply of high-performance products by increasing EUV applications, increase competitiveness by increasing cutting-edge processes, increase sales of advanced process products, and maximize the quality of its business portfolio to support the growth of potential demand for servers and PCs.

Looking ahead to 2022, Samsung remains positive and optimistic about the growth of its server-side storage business, mainly due to the increase in capital expenditure on data centers and the increase in storage demand driven by the increase in multi-core CPUs, while the development of 5G will continue to drive the growth of storage capacity for mobile devices, and Samsung will increase EUV applications to expand the supply of high-performance products to consolidate its leading position in the industry.

Divided by department

The consumer electronics business recorded record quarterly revenue of 15.35 trillion won, but profit fell slightly from the previous quarter due to rising costs. Samsung will boost the profitability of its consumer electronics business by continuing to expand sales of high-end products and new products such as Neo QLED and Bespoke.

Revenue from the mobile business, including MX, was KRW 28.95 trillion in the fourth quarter, and revenue continued to grow quarterly due to increased sales of high-end products such as folding mobile phones and device ecosystems, but profit decreased sequentially due to higher marketing expenses. The network business improved sequentially from the previous quarter as domestic and global revenue grew. Samsung expects the mobile MX business to achieve revenue and profit growth with the release of new flagship models in 2022, increasing sales of 5G smartphones and tablets and wearables. At the same time, Samsung will continue to capture the demand for 5G networks and win new opportunities for network business from customers in Europe and other parts of the world.

The semiconductor business's total revenue hit a record high of 26.01 trillion won in the fourth quarter, and the operating profit was 8.84 trillion won. Profitability declined slightly from the previous quarter due to the increase in related costs due to the upgrading of advanced process nodes. Samsung will focus on improving the yield of advanced processes, improving the stability of supply, and expanding market supply by increasing the production capacity of advanced processes. In addition, Samsung will achieve mass production of the first generation of GAA process products in the first half of 2022.

The panel business had consolidated revenue of KRW 9.06 trillion and operating profit of KRW 1.32 trillion in the Q4 quarter. Among them, the profitability of the mobile panel business continued to improve, while the loss of large panels expanded due to the decline in the price of LCD liquid crystal displays and the rise in the cost of QD displays. Samsung expects the demand for OLED to increase as 5G penetration increases and the foldable market grows. For large panels, in the first quarter of 2022, with the large-scale production of QD displays will alleviate some of the losses, Samsung will strive to ensure that QD displays are technologically leading in the high-end field, while closing the LCD production line as planned.