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Samsung rebounds

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.

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Personal computing devices sales still decline in MEA

The Middle East and Africa (MEA) personal computing devices (PCD) market, which is made up of desktops, notebooks, workstations, and tablets, suffered a decline of -7.3% year on year in Q2 2017, according to the latest insights from International Data Corporation (IDC).

The global technology research and consulting firm’s Quarterly PCD Tracker for Q2 2017 shows that PCD shipments fell to around 6 million units for the quarter.

“As forecast, the market followed a similar pattern to recent quarters, with the downturn primarily stemming from a decline in shipments of slate tablets and desktops,” says Fouad Charakla, IDC’s senior research manager for client devices in the Middle East, Turkey, and Africa. “This was the result of desktop users increasingly switching to mobile devices such as notebooks or even refurbished notebooks, while users of slate tablets shifted to smartphones. These trends translated into year-on-year declines of -21.9% for desktops and -15.7% for slate tablets in Q2 2017, while shipments of notebooks and detachable tablets increased 11.0% and 63.3%, respectively over the same period.”

“Market sentiment in the region remained low overall, although an aggressive push from some slate tablet vendors meant the market declined much slower than expected,” continues Charakla. “At the same time, heightened competition has also made it harder for certain players to sustain their slate tablet businesses and generate profits, causing them to lose interest in the slate tablet market altogether. Despite this, slate tablets are still the most popular computing device among home users in the region.”

Looking at the region’s key markets, IDC’s research shows that when compared to Q2 2016 overall PCD shipments were down -11.4% in the UAE, -8.9% in Turkey, and -6.7% in the ‘Rest of Middle East’ sub-region (comprising Iran, Iraq, Syria, Yemen, Palestine, and Afghanistan). South Africa and Saudi Arabia bucked this trend, recording year-on-year increases of 3.5% and 9.6%, respectively.

A massive education delivery in Pakistan acted as a key driver for notebook shipments in the region overall. Similarly, the education sector was the biggest driver of detachable tablet shipments, triggered by a huge delivery in Kenya, as well as two other deliveries in Pakistan and Turkey, which enabled this category to achieve the fastest growth of all the PCD categories.

“While a component shortage prevented market players from reducing their prices too much, the average price of consumer notebooks experienced a considerable year-on-year decline in Q2 2017,” says Charakla. “This played a key role in driving demand from the consumer segment, and was reflected in the growing popularity of lower-priced notebook models.”

Looking at the PC market’s vendor rankings, each of the top five vendors maintained their respective positions compared to the previous quarter, with the top four all gaining share.

Middle East & Africa PC Market Vendor Shares – Q2 2016 vs. Q2 2017

Brand Q2 2016 Q2 2017
HP Inc. 23.7% 27.6%
Lenovo 19.8% 21.5%
Dell 16.3% 16.7%
ASUS 8.7% 9.4%
Acer Group 5.9% 4.1%
Others 25.7% 20.7%

Although Samsung continued to lead the tablet market, the vendor rankings in the space saw quite a few changes, with Huawei catapulting itself to second place. Lenovo also climbed up a position compared to the previous quarter, causing Apple to drop to fourth place.

Middle East & Africa Tablet Market Vendor Shares – Q2 2016 vs. Q2 2017

Brand Q2 2016 Q2 2017
Samsung 20.5% 18.9%
Huawei 11.2% 15.8%
Lenovo 12.7% 9.8%
Apple 9.1% 8.8%
Alcatel 2.9% 5.0%
Others 43.5% 41.7%

“Looking to the future, the MEA PCD market is expected to decline at a faster rate than previously forecast for 2017 as a whole,” says Charakla. “Technological shifts are playing a pivotal role in deciding the future of this market, with demand for certain products shifting to other PCD products and beyond (i.e., smartphones). Accordingly, shipments of slate tablets are expected to continue declining over the coming years as demand is cannibalized by smartphones. Meanwhile, the ongoing shift to mobile computing will see growth in the desktop market remain close to flat throughout IDC’s forecast period ending 2021. Notebook shipments will experience very slow growth beyond 2018, while detachable tablets will remain the fastest growing PCD category, eating away share from other computing devices.”

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Gazer cyber-spies exposed

ESET has released new research into the activities of the Turla cyberespionage group, and specifically a previously undocumented backdoor that has been used to spy on consulates and embassies worldwide.

ESET’s research team are the first in the world to document the advanced backdoor malware, which they have named “Gazer”, despite evidence that it has been actively deployed in targeted attacks against governments and diplomats since at least 2016.

Gazer’s success can be explained by the advanced methods it uses to spy on its intended targets, and its ability to remain persistent on infected devices, embedding itself out of sight on victim’s computers in an attempt to steal information for a long period of time.

ESET researchers have discovered that Gazer has managed to infect a number of computers around the world, with the most victims being located in Europe. Curiously, ESET’s examination of a variety of different espionage campaigns which used Gazer has identified that the main target appears to have been Southeastern Europe as well as countries in the former Soviet Union Republic.

The attacks show all the hallmarks of past campaigns launched by the Turla hacking group, namely:

  • Targeted organisations are embassies and ministries;
  • Spearphishing delivers a first-stage backdoor such as Skipper;
  • A second stealthier backdoor (Gazer in this instance, but past examples have included Carbon and Kazuar) is put in place;
  • The second-stage backdoor receives encrypted instructions from the gang via C&C servers, using compromised, kegitimate websites as a proxy.

Another notable similarity between Gazer and past creations of the Turla cyberespionage group become obvious when the malware is analysed. Gazer makes extra efforts to evade detection by changing strings within its code, randomizing markers, and wiping files securely.

In the most recent example of the Gazer backdoor malware found by ESET’s research team, clear evidence was seen that someone had modified most of its strings, and inserted phrases related to video games throughout its code.

Don’t be fooled by the sense of humour that the Turla hacking group are showing here, falling foul of computer criminals is no laughing manner.

All organisations, whether governmental, diplomatic, law enforcement, or in traditional business, need to take today’s sophisticated threats serious and adopt a layered defence to reduce the chances of a security breach.

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