Reporting season is nearly over for the third quarter, so we've taken a look at the leading OEMs based in Asia to see where things stand. It was a tough quarter for most, but continued strength for smartphones appears to have tempered some of the continuing effects of Japan's post-tsunami recovery, China's wage uncertainty, and retail weakness in Europe and the US. Here's a snapshot going into the fourth quarter:
Korea's Samsung Electronics Co. Ltd. (Korea: SEC) saw profits fall a dramatic 23 percent, a surprising figure given the high-profile success for its Galaxy tablets and smartphones. The decline was due to a downturn in its mainstay chip business, and a lesser fall in demand for flat panel displays.
That would be good news for Sony Corp. (NYSE: SNE), whose handset joint venture with Ericsson AB (Nasdaq: ERIC) broke even on the quarter. Shipments were down 9 percent compared to the same quarter last year. But the operating margin was up 2 percent, compared to a loss of 3 percent last year. The shift is explained, the company claimed, by the trend toward smartphones, from so-called "feature phones," which have lower profit margins.
Sony added to the news yesterday with an announcement that it was buying out its Ericsson for $1.5 billion, and taking sole control of the mobile venture. The third quarter move means a shift for suppliers, most based in Asia, with Japan's Sony now firmly in the smartphone business, and Ericsson -- which helped invent the cellphone industry -- out. They're going to focus on networking equipment.
LG took nearly $130 million in losses in the quarter, but like Samsung, the numbers were contradictory for the Korean giant's suppliers. Shipments of flat screens were the highest ever in a third quarter for the company. But sales were down. That would seem to imply lower orders in the future, but there's not much evidence of that yet. Insofar as LG sales stay flat, orders to suppliers, many of which are in China, will have to sag at some point. But not yet.
In China, ZTE, the massive networking and mobile device company, passed Apple to become the world's fourth-largest maker of mobile devices (Nokia is still first). The reason: price. ZTE is leading growth in lower-price models and taking most of the bottom end of a 14 percent increase in mobile phone sales this year.
What can suppliers take away from this snapshot? The most important lesson appears to be that OEMs are still increasing production even in the face of lagging consumer sales. The bet seems to be that taking control of new smartphone and tablet businesses will pay off post-crisis, so losses now will be offset. Weak sales by OEMs aren't rippling down the supply chains as much as they would in a more normal economic environment. High-stakes bets for OEMs should mean stability for suppliers for the rest of the year and into the spring. News like sales growth from ZTE, and the Sony-Ericsson buyout, should make suppliers able to do something that's not always easy in 2011: smile with relief.
Heh. I see what you mean; my sense of it was that we are seeing with samsung a great example of the difference between bottom line and public profile. Samsung, thanks to the Galaxy line, is absolutely everywhere -- except for in the black part of the balance sheet. We all know why that is so, but it's still a nice reminder that visibility doesn't always mean clear success. At least in the short term. Thanks for your comment.
Nice job on the article. By the way, do you get the feeling, the way I do, that a lot of companies are hanging by their arms from a branch over a deep canyon, and that while we are acting as if everything is okay for now, there is the feeling that those arms are going to get really tired? And when is that rope going to get here?
Most of what little brain power I have is engaged in the personal problem of trying to figure out how to avoid causing gastric inflammation in someone with multiple food intolerances and still have that person meet his daily nutritional needs. The rest is spent trying to find my socks, and cogitating about the wonderful world of electronics. No stocks tips from me!
Thanks for the post Mac. By looking at the Samsung is down 23%, LG's $130 million losses in the quarter is the whole market going down? But still the supply is high, there is always a hope for the best market. The smartphone and tablet will be the prominent portion of the e-market.
Marc, Asian OEM companies may have a good Q3 results, because of the impact of Q1 & Q2. But due to the flood in Thailand, the Q4 results may not be good, more over again there may be chance for global economic slowdown too.
My takeaway is that these Q3 numbers are overall a good thing. Yes, some companies like Samsung and LG show losses, but this is due to specific market segments pulling them down, not overall sales performance. This means that Q4 numbers and total 2011 numbers should show us that despite global economic issues, the electronics industry is doing well and not as downtrodden as other global markets.
Flooding has affected two large high-tech industrial parks: Bang Pa-in Industrial Park and Navanakorn Industrial Park, where entire assembly lines are under water.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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