Samsung Electronics has posted $45.78 billion in consolidated revenue and $7.91 billion in operating profit for the fourth quarter of 2016. Overall, the company reported full-year 2016 revenue of $173.27 billion and full-year 2016 operating profit of $25.1 billion.
Fourth quarter earnings for October to December 2016 were driven by the components businesses, mainly the Memory business and the Display Panel segment, which manufactures OLED and LCD screens. Robust sales of high-end, high-performance memory products and expanded process migration in V-NAND, plus strong shipments of OLED and large-size UHD panels contributed to profitability. The stronger US dollar against the Korean won also had a positive impact on operating profits.
The Mobile business registered gains year-on-year (YOY) due to solid sales of flagship products such as Galaxy S7 and S7 edge, and improved profitability of mid-to-low end models. The Consumer Electronics division posted an earnings decline, despite increased sales of premium TVs, including SUHD and curved TVs. The Digital Appliances business saw positive demand in the fourth quarter, but new investments in B2B resulted in a slip in earnings.
For 2016, Samsung achieved solid results, despite the discontinuation of the Note 7 in the second half. This was as a result of continuous efforts during the past two to three years to strengthen its component business competitiveness, by focusing on value-added products and widening the technology gap in the DRAM business, as well as strategic investments in V-NAND and OLED. In addition, the company made several key acquisitions and divestures which will enable the future growth.
In 2017, the components businesses predict solid demand for value-added semiconductor products and for flexible OLED and large-size LCD panels. The company will seek to improve profitability in DRAM and NAND, amid continued growing demand for data centre servers and mobile devices. System LSI will continue to diversify its customer base in order to increase earnings. For display panels, earnings from high-end flexible OLED are expected to increase YOY, due to an expansion in supply and Samsung expects to meet stronger competition in the LCD market with value-added products focusing on UHD and large-size TV panels.
For Mobile in 2017, the company says it will continue to innovate both in software and hardware across its entire line-up and prioritise consumer safety. Although the growth of the global smartphone market is expected to slow this year, new services such as artificial intelligence (AI) will be a differentiating factor. The mobile business will seek to reinforce its leadership in the premium market and boost competitiveness of mid-to-low end smartphones by adding innovative features available in high-end models.
For Consumer Electronics in 2017, the company says it will aim to strengthen its market leadership in the premium TV market, with QLED TV and large-size UHD TV, while also enhancing its brand in the B2B sector of the home appliances market.
Moving into the first quarter, overall earnings are expected to decline quarter-on-quarter (QOQ), as earnings in the set businesses are projected to decrease as a result of increased marketing expenses in the Mobile business and a sales decrease of TVs, due to weak seasonal demand.
For the Memory business, the company aims to achieve solid earnings, despite the seasonal weakness of the first quarter, with a focus on high-density and high-performance products. The ramp up of 10nm mobile AP production by System LSI is anticipated to maintain stable revenue. The Display Panel segment will seek to stay profitable by meeting the market’s appetite for OLED panels and expanding shipments of value-added LCD panels.
Total capital expenditure (CAPEX) executed in 2016 was $21.9 billion, which is lower than the previous guideline $23.2 billion. This is mainly due to the year-end investments carrying over to 2017. Investment in the display panel segment reached $8.4 billion, while the Semiconductor business was accountable for $11.3 billion in CAPEX, with an 8:2 split between the Memory and System LSI businesses.
The CAPEX plan for 2017 has not been finalised
Looking at the mid- to long-term, based on shifts in the IT industry from the growth of the Internet of Things (IoT), artificial intelligence (AI) and automotive businesses, new demand is projected to spur growth in the components business. Additionally, new designs and usages are expected to emerge in the set businesses.
In the Semiconductor business, the company expects to see huge growth in demand for high-density, high-performance memory, for processing big data in the server market, as well as chipsets for automotive and AI-related businesses.
In the OLED business, the market receptiveness to value-added flexible panel is projected to grow substantially from the innovations in smartphone form factors.
In the set business, the importance of cloud and AI solutions for mobile devices will expand rapidly, as well as connectivity solutions for smart homes.
Through these new developments, Samsung forecasts significant new business opportunities. However, the company remains mindful of uncertainties in the global business environment. These circumstances could potentially bring challenges to the execution of its mid- to long-term business strategies, such as M&A and investment decisions and developing new growth engines.
Semiconductor Posts Strong Growth
The Semiconductor business registered KRW 4.95 trillion in operating profits on consolidated revenue of $4.25 billion for the quarter.
The memory division achieved strong earnings growth in the fourth quarter by focusing on high profitability and a differentiated product mix.
For NAND, trade opportunity for mobile products such as high-density SSD remained solid, while industry supply was restricted. The company posted significant QOQ growth by responding to demand for high-end enterprise SSD, based on V-NAND.
For DRAM, supply and demand conditions remained favourable. The company achieved solid earnings by concentrating on a profit-focused product mix and addressing increased mobile demand, particularly for smartphones, high-end PCs and data centre servers.
Looking to the memory outlook for 2017, stable favourability from mobile and servers is expected to continue.
For NAND, earnings will be driven by higher requirements for high-density SSD, including NVMe over 256GB and increased adoption of high-density SSD in data centres and enterprise servers.
Demand for mobile storage will grow as smartphones transition to larger storage. Although the industry’s 3D NAND supply will be a key variable, supply and demand is estimated to remain favourable throughout the year. The company is also preparing for mass production at its Pyeongtaek site, while enhancing its leadership through 64-layer process migration.
For DRAM, demand will remain solid throughout the year, led by higher densities in data centres and smartphones. Samsung will focus on maximising profitability through sales of high-density and low-power products and by expanding 1Xnm process migration.
Looking at the first quarter, weak seasonality will impact demand, although overall conditions will remain solid due to limited industry supply. For NAND, stable demand for value-added products such as high-density storage will continue, while the company aims to strengthen profitability through 48-layer V-NAND and mass production of 64-layer V-NAND. For DRAM, adoption of higher densities will continue and Samsung plans to expand supply of the industry’s first mass-produced 10-nm class products.
Regarding the System Large-Scale Integration (LSI) business, increased sales of mid-to-low end mobile AP, image sensors and DDI, driven by the growth of China’s mobile market, contributed to solid earnings results in the fourth quarter. The company maintained its technological leadership with the mass production of industry’s first 10-nm process.
For 2017, System LSI will focus on securing growth through high utilisation ratio, by diversifying 14-nm product line-ups and by responding to rising demand for image sensor and DDI products. It will also continue to strengthen technological competitiveness by securing stable supply of 10-nm products. In the first quarter, the company will ramp up mass-production of 10-nm products for flagship smartphones and actively respond to demand for 14-nm products for mid-to-low end smartphones.
Display Continues Solid Performance
The Display Panel segment posted $6.4 billion in consolidated revenue and $1.15 billion in operating profit for the quarter, driven by increased shipments from OLED panels and improved earnings from large-sized LCD TV panels.
For OLED, the company achieved solid earnings in the fourth quarter by increasing sales through customer diversification and by continued cost reduction.
For LCD, earnings improved QOQ under stabilised ASPs led by favourable supply-demand conditions. Moreover, the company increased profitability through improved yield and cost reduction and the expansion of value-added products, especially large-size UHD TV panels.
Looking ahead to 2017, the company will strive to improve earnings YOY by increasing shipments of flexible OLED through its technological leadership and expansion of capacity. For LCD, although competition will intensify, the market for premium TV panels is expected to grow. In response, the company will aim to strengthen profitability by improving the competitiveness of value-added products, focusing on UHDs and large-size panels, as well as expanding the portion of differentiated products such as frameless and curved TV panels.
For the first quarter, OLED demand is expected to rise as smartphone makers pursue product differentiation. Under these circumstances, the company will focus on actively addressing customer demand and enhancing its product mix. As for LCD, weak seasonality will dampen demand, although migration toward UHD TV and larger screens is expected to continue amid favourable supply-demand conditions. In turn, the company will focus on cost reduction and yield improvement, as well as expansion of value-added products such as ultra-large size, high resolution and curved panels.
Premium Products to Drive Mobile Growth
The IT & Mobile Communications (IM) Division posted $20.3 billion in consolidated revenue and $2.15 billion in operating profit for the quarter. The fourth quarter saw higher market demand for smartphones and tablets on year-end peak seasonality.
The Mobile business saw its earnings increase YOY on the back of continued robust sales of the flagship Galaxy S7 and S7 edge, as well as improved profitability in the mid-to-low end segment.
Looking ahead to 2017, while slow growth in smartphone demand is forecast, new services such as AI are expected to be differentiating factors for the industry this year.
Samsung will look to reinforce its market leadership and drive growth in the premium smartphone segment with differentiated design and innovative features. The company plans to enhance the competitiveness of its mid-to-low end models by introducing water and dust-proof features and fingerprint recognition.
In addition, the company will continue to strengthen its software and service competencies to provide new customer values, by expanding the roll out of services such as Samsung Cloud and Samsung Pay and by introducing AI-based services on premium smartphones.
This year, the company’s priority will be to ensure consumer safety and product quality by enhancing product assurance processes, implementing new preventive measures and augmenting a dedicated team of experts.
In the first quarter, although weak demand for smartphones and tablets is forecast due to seasonality, increased shipments of Samsung smartphones such as the mid-tier Galaxy A and J series is expected to contribute to QOQ sales growth, while profit will decrease slightly QOQ, due to increased expenses, including marketing.
As for the Networks Business, the continued roll out of 4G LTE services in global markets helped increase sales and enhance earnings in the fourth quarter. Samsung aims to maintain solid sales in the first quarter, thanks to new 4G opportunities in emerging markets, as well as LTE business expansion with existing customers.
In 2017, the company will continue to maintain the current sales momentum by expanding LTE business in emerging markets and next generation IoT network business in advanced markets.
Consumer Electronics Posts Decline in Profit
The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses, posted $11.7 billion in consolidated revenue and $274.7 million in operating profit for the fourth quarter.
In the fourth quarter, global TV market demand remained flat YOY, due to weakness in emerging markets, despite the positive performance in developed markets. Under these circumstances, we were able to outperform the market growth rate and strengthen our market share in the premium segment, led by promotional sales in the year-end peak season. However, 4Q earnings decreased YOY due to increased panel price and currency fluctuations.
Looking to the TV market in 2017, demand is expected to slightly increase as emerging markets recover and replacement purchases increase. Also, the company foresees the demand in premium large-size UHD TV models will continue to grow. In spite of such forecasts, currency fluctuation in major markets may potentially dampen growth and competition is likely to intensify. In 2017, the company will expand its premium line-up, including the newly introduced QLED TV. By providing innovative new products, Samsung will aim to secure profitability and solidify its market leadership.
In the first quarter, TV demand is expected to decline under weak seasonal demand. Under these circumstances, the company also forecasts a slight decline in sales as a result of panel price fluctuations. Nevertheless, Samsung will focus on improving profitability by bringing new premium products to market earlier.
For the Digital Appliances business, in the fourth quarter, overall demand slightly decreased amid weakness in emerging markets, despite growth in North America. The company achieved YOY sales growth by expanding sales of premium products, including Add Wash and the Chef Collection series, while new B2B investments had a negative impact on overall earnings.
In 2017, the company will focus on the premium market by introducing innovative products such as the Family Hub 2.0 refrigerator and Flex Wash & Flex Dry. Moreover, in the B2B market, Samsung will aim to enhance its brand value and competitiveness by expanding investments in product development, marketing etc.
Crouching Yeti strikes
Kaspersky Lab has uncovered infrastructure used by the Russian-speaking APT group Crouching Yeti, also known as Energetic Bear, which includes compromised servers across the world.
According to the research, numerous servers in different countries were hit since 2016, sometimes in order to gain access to other resources. Others, including those hosting Russian websites, were used as watering holes.
Crouching Yeti is a Russian-speaking advanced persistent threat (APT) group that Kaspersky Lab has been tracking since 2010. It is best known for targeting industrial sectors around the world, with a primary focus on energy facilities, for the main purpose of stealing valuable data from victim systems. One of the techniques the group has been widely using is through watering hole attacks: the attackers injected websites with a link redirecting visitors to a malicious server.
Recently Kaspersky Lab has discovered a number of servers, compromised by the group, belonging to different organisations based in Russia, the U.S., Turkey and European countries, and not limited to industrial companies. According to researchers, they were hit in 2016 and 2017 with different purposes. Thus, besides watering hole, in some cases they were used as intermediaries to conduct attacks on other resources.
In the process of analysing infected servers, researchers identified numerous websites and servers used by organisations in Russia, U.S., Europe, Asia and Latin America that the attackers had scanned with various tools, possibly to find a server that could be used to establish a foothold for hosting the attackers’ tools and to subsequently develop an attack. Some of the sites scanned may have been of interest to the attackers as candidates for waterhole. The range of websites and servers that captured the attention of the intruders is extensive. Kaspersky Lab researchers found that the attackers had scanned numerous websites of different types, including online stores and services, public organisations, NGOs, manufacturing, etc.
Also, experts found that the group used publicly available malicious tools, designed for analyzing servers, and for seeking out and collecting information. In addition, a modified sshd file with a preinstalled backdoor was discovered. This was used to replace the original file and could be authorised with a ‘master password’.
“Crouching Yeti is a notorious Russian-speaking group that has been active for many years and is still successfully targeting industrial organisations through watering hole attacks, among other techniques. Our findings show that the group compromised servers not only for establishing watering holes, but also for further scanning, and they actively used open-sourced tools that made it much harder to identify them afterwards,” said Vladimir Dashchenko, Head of Vulnerability Research Group at Kaspersky Lab ICS CERT.
“The group’s activities, such as initial data collection, the theft of authentication data, and the scanning of resources, are used to launch further attacks. The diversity of infected servers and scanned resources suggests the group may operate in the interests of the third parties,” he added.
Kaspersky Lab recommends that organisations implement a comprehensive framework against advanced threats comprising of dedicated security solutions for targeted attack detection and incident response, along with expert services and threat intelligence. As a part of Kaspersky Threat Management and Defense, our anti-targeted attack platform detects an attack at early stages by analysing suspicious network activity, while Kaspersky EDR brings improved endpoint visibility, investigation capabilities and response automation. These are enhanced with global threat intelligence and Kaspersky Lab’s expert services with specialisation in threat hunting and incident response.
More details on this recent Crouching Yeti activity can be found on the Kaspersky Lab ICS CERT website.
R5m in software fines
South African companies paid almost R5.2 million in damages for using unlicensed software in 2017 up from R3.6 million in 2016.
This is according to data from BSA | The Software Alliance, a non-profit, global trade association created to advance the goals of the software industry and its hardware partners.
The significant increase in unlicensed software payments – which includes settlements as well as the cost of acquiring new software to become compliant – is the result of more accurate leads from informers, says Darren Olivier, Partner at Adams & Adams, legal counsel for BSA. In 2017 BSA received 281 reports in South Africa alleging the use of unlicensed software products of BSA member companies – this up considerably up from 230 leads in 2016.
“BSA’s recent social media campaign also helped to create awareness among local companies about the need to comply with existing legislation in order to avoid legal action,” Olivier says.
The result has been a 13% increase in settlements paid in 2017, with the settlements total reaching almost R2.5 million.
While the average settlement paid by companies in 2017 was around R36 094, in some cases the amount owed was far greater, as is evidenced by Shereno Printers, a print and design company based in Gauteng, which ended up paying a hefty settlement amount of R260 000 last year in an out of court settlement.
The company’s case was in line with a broader trend, which saw the print and design industry as a whole rank among the top sectors plagued by unlicensed software.
Aside from settlements, companies also paid more than R2.6 million in licenses purchased to legalise their unlicensed software.
And the ramifications of software piracy extend beyond financial implications. “It also results in potential job losses and loss in tax revenue. This is not to mention the financial and reputational damage brought about by security breaches and lost data,” comments Olivier.
As unlicensed software has not been updated with the latest security features, it leaves businesses vulnerable to cyberattack, he explains.
This is a particular problem for companies operating in South Africa where economic crime has recently reached record levels, according to the Global Economic Crime Survey. Indeed, 77% of South African organisations have experienced some form of economic crime. What’s more, instances of cybercrime totalled 29% of economic crimes reported.
This in turn, raises questions around government policy and the adequacy of existing copyright legislation, which only enables the registration of copyright in films, but not in computer programs.
Olivier notes that it is likely the percentage of unlicensed software on South African computers has increased over the past year. “We received many more leads this year, which is an indicator that the amount of pirated software is greater than in previous years,” he comments.
Often unlicensed software is not so much a case of deliberate piracy as it is a result of poor software asset management (SAM).
“For this reason, the BSA encourages all businesses to ensure they have effective SAM practices in place. Companies should be able to confirm what software they are using and are licensed to use – this will help them to identify unlicensed software and can also bring about cost savings. Even the most basic SAM practices such as regular inventories and software use policies can help,” says Chair of the BSA SA Committee, Billa Coetsee.
With this in mind the BSA offers a range of SAM solutions, not only to help organisations reduce legal and security risks, but also to create business value.