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Results Q2 2015Summary and Commentary

(Based on Samsung Electronics’ un-audited earnings release of 30th July 2015)

Note: Samsung Q2 = Calendar Q2

The following slides are in USD, converted from the KRW results using quarter-end exchange rates. This provides the most relevant comparisons with global technology companies.

(Samsung has not yet released its Dollarised results, which when available may vary depending on the mix of exchange rates and currency hedges employed by the company)

These data are derived from results published by Samsung Electronics Co Ltd, from the published results of other companies, and from assorted independent analysts, as identified in the slides.

The opinions are those of the author, and should in no way be interpreted as investment advice.

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Samsung Electronics

•Samsung Electronics is the largest company within the Samsung Group, a “Chaebol” conglomerate based in the town of Samsung, in South Korea.

•Samsung Electronics comprises three main divisions, one of which is usually reported in two parts. These are:

•Device Solutions, which includes:

•The Semi-conductor Division, abbreviated to “Semi”

•and the Display Panel Division, abbreviated to “DP”

•Consumer Electronics Division, abbreviated to “CE”

•IT & Mobile Communications Division, abbreviated to “IM”. This includes the smartphone and tablet business.

•In 2013, Samsung Electronics accounted for 68% of the revenue and all of the Net Income of Samsung Group

•This report focuses entirely on Samsung Electronics

AquillaSource: Samsung Electronics Results

Quarterly Revenue and YoY GrowthContinuing Decline •Another challenging

quarter, with YoY decline of 16% in USD terms, though rather more encouraging in local currency, being only 7% down

•Set against Apple’s equivalent quarter Samsung Electronics reported sales 13% lower, and its Mobile division 53% less than Apple’s sales

•Most worryingly, the momentum delivered by the Galaxy S6 appears to have been muted, and to have made little impact on the older iPhone 6

Comparative Revenues CQ2 2015

App

le

Mic

roso

ft

Goo

gle

-30%

-15%

0%

15%

30%

45%

60%

75%

90%

0

10

20

30

40

50

60

70

80

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Growth (%)

Revenue (B$)

Samsung Electronics Revenue

Revenue B$ Revenue YoY Growth

AquillaSource: Samsung Electronics Results

Divisional ProfitabilityMobile Supplanted by Semi •The Semi-conductor Division

continues to grow its share of Operating Profit, contributing 49% in Q2

•IM lagged again, dropping to a 40% share, despite this being the launch quarter for the S6

•DP contributed 8% and CE 3%, back into profit after a loss-making Q1

•These figures suggest the conflict between Samsung as OEM supplier through its Semi-conductor division, versus device vendor through IM continues to swing towards the OEM business

•The 14nm fab plant will prove increasingly influential - it has already regained Apple as a customer, suggesting that Semi will show even stronger results in Q3 and Q4

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

B$

Divisional Operating Profit

Semi%Opera*ng%Profit%B$% DP%Opera*ng%Profit%B$% CE%Opera*ng%Profit%B$% IM%Opera*ng%Profit%B$%

AquillaSource: Samsung Electronics Results

Research & DevelopmentStrong R&D Investment •Samsung’s investment in R&D fell

back sharply in Q2, by almost $500m, to 6.9% of revenues

•This is more in line with the long term trend rate, and suggests some belt-tightening in the company

•This remains around twice that of Apple, both as a percentage of revenue and in dollar terms

•Samsung remains a modest R&D spender by comparison with some other major tech companies

R&D $ R&D %

Apple $ 1.5 B 3.3%

Samsung $ 3.8 B 7.4%

Microsoft $ 2.6 B 12.0%

Google $ 2.5 B 14.9%

Intel $ 2.9 B 20.6%

R&D Spend (Avg/Qtr 2014, % of Rev)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0

1,000

2,000

3,000

4,000

5,000

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

R&D vs Rev (%)

R&D Spend (M$)

Samsung Electronics Research & Development

R&D M$ R&D % of 12m Trailing Rev

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Tablet Units - Peaked?

Source: Gartner, IDC and others

0

20,000

40,000

60,000

80,000

0

5,000

10,000

15,000

20,000

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Trailing 12m Units (000s)

Q Units (000s)

Tablet Units

Tablets kU Tablets Trailing 12m kU

Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and

gives a better indication of the longer term trends

AquillaSource: Samsung Electronics Results

Regional Splits (Q1)Red Ink Everywhere •More sharp declines were

reported in every region - 15% overall

Home Market Drops •South Korea declined

12%, with Apple a major beneficiary

America Turns •The Americas saw a third

quarter of decline, but still remains Samsung’s largest region

Europe Fades Badly •Europe has declined every

quarter since Q3 2013 and has now dropped below 20% of the mix

Asia/Africa Steady •Asia/Africa region posted

the smallest decline, with India becoming a key target for Samsung

China Worrying •A further 29% decline in

China is most worrying of all, slipping to 15% of the mix. For comparison it is 29% of Apple’s business

Most recentShare YoY

11% -12%

32% -6%

19% -25%

23% -4%

15% -29%China

Asia/Africa

Europe

Americas

South Korea

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Regional Splits ($)

Note: Q1 Regional Breakdowns not yet available from Samsung - commentary relates to Q1

AquillaSource: Samsung Electronics Results

Competitive Landscape - TabletsSamsung second in declining market •With the tablet market showing another 7% decline, Samsung

remains one of only two double-digit vendors in the mix, with Apple still top

•Signs of stabilisation are potentially visible, but the major winners are likely to be the white box vendors, and potentially Microsoft (from a small base)

•Windows 10 may yet trigger a revival in tablets, especially as many X86 tablets are subsidised by Intel, and the likes of Lenovo can leverage its strong enterprise presence

Source: IDCSource: IDC

Q2’15 M Q2’15% Q2’14 M Q2’14% Change

Apple 10.9 24.5% 13.3 27.7% -17.9%

Samsung 7.6 17.0% 8.6 18.0% -12.0%

Lenovo 2.5 5.7% 2.4 4.9% 6.8%

Huawei* 1.6 3.7% 0.8 1.7% 103.6%

LG Electronics* 1.6 3.6% 0.5 1.0% 246.4%

Others 20.4 45.6% 22.4 46.7% -9.3%

Total 44.7 100.0% 48.0 100.0% -7.0%

Q2 2015 Tablet Units (IDC)

(Huawei/LG a statistical tie)

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Samsung’s Q2 Results Analysis - Full Slide Deck

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Samsung’s Q2 2015 Audited Results Analysis

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AquillaNick Graves, CEO • nick@aquilla-europe.com • +44 780 225 6536

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