Performance Comparison of Samsung Galaxy Note and Apple iPhone 12

The performance of Korea 's two major IT product parts makers has been divided depending on when their customers launch their smartphones. Samsung Electro-Mechanics, which has Samsung Electronics as its main customer, had better-than-expected performance in the third quarter due to the release of many smartphones such as the Galaxy Note 20 series. LG Innotec, on the other hand, had a bitter taste as the release of Apple 's iPhone 12, which is highly dependent on performance, was postponed to the fourth quarter.

However, both parts manufacturers are likely to laugh at the end of the year. LG Innotec is practically reserving strong performance in fourth quarter due to iPhone delay effect, and Samsung Electro-Mechanics is expected to be able to overcome seasonal off-season due to improvement in MLCC (Multi-Layer Ceramic Condenser) business conditions.

Samsung Electro-Mechanics Co., Ltd. made $ 2.2879 trillion (20.2879 trillion KRW) in sales and 302.5 billion KRW in operating profit in third quarter of this year Sales increased 26 % quarter-on-quarter, and operating profit increased 215 %. Compared to the same period last year, the performance increased by 3 percent and 60 percent, respectively.

The overall performance of all business sectors has improved. By business sector, the component division, which focuses on MLCC, posted sales of 983.2 billion won, up 17 percent from the previous quarter and 20 percent from the same period last year. Due to the release of new Galaxy models by Samsung Electronics, sales of high-end MLCCs such as small and high capacity have increased. As demands for electric equipment parts have recovered from markets, supply of MLCCs for electric fields has also increased.

As supply of high-performance camera modules increased, sales of modules also increased 41 % quarter-on-quarter to 852.7 billion won. However, it decreased by 9 % compared to the same period last year when Corona 19 (new corona virus infection) was not affected.

The substrate division posted 452 billion won in sales, up 23 percent from the previous quarter. This is because supply of high value-added packaging panels such as mobile application processor (AP) and thin-plate CPU (Central Processing Unit) has increased and supply of flagship new model-oriented RFPCB (hard-flammable printed circuit board) has increased.

On the other hand, LG Innotec's situation was not good in the third quarter. LG Innotec recorded 2.2298 trillion won in sales and 89.4 billion won in operating profit based on third quarter of this year. Compared to the previous quarter, sales and operating profit rose 44.8% and 108.2%, respectively, but shrank 8.8% and 52.1% compared to the same period last year.

This is largely due to Apple's delay of release of iPhone 12 series to the fourth quarter. Apple initially announced a new iPhone every September. However it postponed release of 5G modem this year due to difficulties in supply and demand of 5G modem due to Corona 19.

This was a direct hit to LG Innotec, which has Apple as its main customer. In the third quarter, LG Innotec's optical solutions division posted sales of 1.458 trillion won, down 13 percent from a year earlier.

In the case of substrate materials business, sales of semiconductor substrates for 5G communication and 2 metal chip on film (CoF) for high-resolution displays increased by 8% compared to the previous quarter and 4% year-on-year to 319.2 billion won. Sales of electronic components business increased 41 percent and 12 percent to 319.2 billion won during the same period.

LG Innotec is expected to satisfy its disappointment in the third quarter in the fourth quarter. The reason for the poor performance in the third quarter is that the planned profits were delayed to the fourth quarter. Sales of iPhone 12 will be reflected in fourth quarter. It is a big drop in the quarter, but there is virtually no difference in annual terms.

In particular, Apple's influence in the smartphone market in the fourth quarter is strong. LG Innotec is also positive in predicting that there will be high demand for replacement of the new product because it is Apple's first 5G smartphone. "The fourth-quarter operating profit will more than triple from the third quarter as the profitability of the optical solution division is normalized," said Kwon Sung-ryul, a researcher at DB Financial Investment.

I am looking forward to next year as well. This is because the company is undergoing a major restructuring of its business structure by suspending its LED (light emitting diode) business.

"We believe that continuing LED business in various aspects, such as profitability and growth, will not help our company's growth," LG Innotek said while announcing the end of LED business along with its performance. "We will strengthen our business portfolio and improve the company's overall profitability by focusing our capabilities on lighting modules for vehicles, which are high value-added products."

LG Innotec is going to produce LED products until December. Until now, profitability of LED business has deteriorated sharply due to excessive price competition with Chinese companies. As a result, LG Innotec's LED business has been in the red since 2008 until last year, and it is in the process of cleaning up its business from three to four years ago.

Researcher Kwon said, "The LED business has accumulated more than 1 trillion won in losses since the project due to excessive investment in the beginning and intensified competition from Chinese companies. If Haeju Corporation ends production in November, the burden of related insolvency will disappear from 21 years."

Although the fourth quarter is a seasonal off-season, Samsung Electro-Mechanics is likely to perform better than expected this year. This is due to improved demand for MLCC across the IT industry.

"While domestic and foreign customers continue to ship solid smartphones, we expect good performance due to improved demand for MLCC across IT, including recovery of the North American battlefield market, expansion of 5G infrastructure, and release of new game consoles," said Noh Kyung-tak, a researcher at Eugene Investment & Securities.

In fact, demand for MLCC has been recovering since the third quarter. Samsung Electro-Mechanics said in a conference call to announce its performance, "The operation rate of MLCC has improved to the full operation level due to a recovery in demand in the third quarter, and inventories have decreased slightly compared to the previous quarter," adding, "As demand for IT such as mobile and TV increases and recovery in demand for electronic devices continues in the fourth quarter, the operation rate and inventory will remain at the current level."

At the same time, Samsung Electro-Mechanics has a strategy to improve the constitution of its module business division, which is heavily influenced by flagship smartphones among Galaxy smartphones.

Previously, Samsung Electro-Mechanics mainly supplied high-end products to flagship Smartphones. Recently, however, more and more low-end smartphones are equipped with components equivalent to modules for flagships. Samsung Electro-Mechanics is also planning to diversify its sales structure by securing sales of low-end Smartphones that use high-end components.

An official of Samsung Electro-Mechanics said, "By expanding the entry of high-end smartphone products, the module division 's sales in the fourth quarter will be able to ease its decline compared to the previous year"adding "Next year, it will be possible to secure an appropriate level of profit due to the effect of reducing costs through the expansion of business size "