SDC 2Q19 Earnings and Free Cash Flow
Samsung reported its 2Q19 display business unit results. We analyzed 1) Apple’s minimum guarantee and the estimated iPhone X units it did not purchase, 2) Samsung Display's free cash flow, and 3) managements guidance on the display business results.
SDC reported 7.6 trillion Won in revenue with an operating margin of 10% for its display business in the most recent second quarter. Revenue was up 24% versus the prior quarter. Free cash flow was 6.1 trillion Won on a trailing twelve-month basis (5.3T excluding estimated one-time items). Operating profit and cash flow include a one-time gain that we will normalize the results. Estimate average sales price (“ASP”) was $738 (sales divided by estimated shipments). Details on the quarter are in our industry model [link] and summarized below.
Samsung Display Revenue
The driver of the increase in revenue growth of 24% quarter over quarter (“QoQ”) was due to an increased mix of mobile rigid OLED. Drivers of the revenue growth for example, in 2Q18 Samsung shipped 78 million handsets. In 2Q19 Samsung shipped 83M handsets. The shipment growth and mix improved revenue and operating margin.
Samsung Display Profit
Operating margin growth was driven by the increased mix of mobile OLED and one-time mobile gains. These one-time gains (margins improvement) were estimated to be 800 billion won as it is reported that Apple had committed to a minimum purchase commitment for displays. Below is data table detailing the potential units that Apple did not purchase based on a range of possible fee per display that ranges from 20% to 100% of the display price. This assumes the fee was for the Iphone X and an estimated cost of ~$65 per display (see our should-cost model for fab A3, 5.85” display, and fab yield est. of ~70%).
Notes and Assumptions
Notes / Assumptions:
- if the display were to cost $80/unit then 20% would mean 53M units were not purchased. Our model predicts a lower purchase price versus a competitor teardown. We suspect SDC has provided worse yields to Apple
- Assumes the fee is for Iphone X as other OLED models would have likely still been under production/negotiation at time of recognition