Samsung Electronics claimed to have secured the top market share in certain home appliance product categories, showing confidence in its business performance. However, the securities industry is seeing bleak forecasts that Samsung Electronics' home appliance division will record a loss in the second quarter of this year. Considering the overall demand slump in the appliance industry, questions are arising regarding the fundamental competitiveness of Samsung's appliance business, especially as its competitor, LG Electronics, is recording an operating profit margin of nearly 10%.
According to industry sources on the 17th, multiple domestic securities firms have issued pessimistic forecasts regarding the profitability of Samsung Electronics' home appliance (DA) division. IBK Securities recently projected in a report that Samsung Electronics' home appliance division would record an operating profit margin of -0.2% in the second quarter. This follows projections of -2.0% in the fourth quarter of last year and -0.5% in the first quarter of this year, predicting losses for three consecutive quarters.
Eugene Securities also estimated that Samsung Electronics' home appliance division would have an operating profit margin of 0%, virtually predicting that it would not make any profit. It was projected that the overall operating profit margin for this year would converge to 'zero (0)'. Samsung Electronics does not disclose the performance of its home appliance and TV divisions separately, leaving investors reliant on estimates from securities firms. Typically, the first half of the year is considered peak season for the appliance industry, so being in the state of 'lower profits in the upper half (상저하저)' during the time when profits should be at their highest throughout the year indicates a concerning trend.
The poor performance of Samsung Electronics' appliances is even more pronounced when compared to LG Electronics. The HS Business Division, responsible for LG Electronics' appliance business, recorded an operating profit margin of 9.6% in the first quarter. The securities industry expects LG Electronics' home appliance division to achieve an operating profit margin of over 7% in the second quarter as well. IBK Securities and Eugene Securities projected LG Electronics' home appliance division's second-quarter operating profit margins to be 8.0% and 7.5%, respectively, with an annual operating profit margin anticipated to be around 6%.
According to industry sources, Samsung is heavily investing in marketing and promotional expenses to secure market share, which is leading to stagnant profitability. One industry insider noted, "Amid sluggish global appliance demand and increasing competition with Chinese brands, both Samsung Electronics and LG Electronics are struggling with their appliance businesses. However, in the domestic and North American markets, Samsung is competing with a minimal market share difference compared to LG Electronics, and the widening gap in operating profit margin indicates that Samsung has spent significantly more on promotional expenses such as price discounts." To manage massive fixed costs, including vast global production facilities and sales companies, a certain level of sales volume must be maintained, but expanding market share without guaranteed profitability could become detrimental, according to analysts.
Amid the repeated emphasis on market share at the expense of profitability, concerns have been raised about the expertise of the leadership driving the appliance business. Roh Tae-Moon, the acting head of the DX (Device Experience) division, which oversees the appliances, TV, and smartphone businesses, has been focused solely on the mobile sector since joining Samsung Electronics. This raises concerns about whether his leadership can demonstrate expertise in a field as different as home appliances. A representative from Samsung Electronics' DA division stated, "In a situation with increased cost burdens, we are struggling to recover from the poor profitability that has persisted since the COVID-19 impact."
In contrast, Chinese appliance companies are rapidly increasing their presence in the market. Chinese appliance leader Haier recorded a consolidated revenue of 79.1 billion yuan (approximately 14.9 trillion won) and a net profit of 5.5 billion yuan (approximately 1 trillion won) in the first quarter, growing by 10.1% and 15.1%, respectively, compared to the same period last year. This growth is attributed to acquisitions of overseas firms, including GE Appliances, indicating they are expanding their influence based on strong capital and production capabilities. Analysts suggest that, similar to the TV market dominated by Chinese companies like TCL and Hisense, it is only a matter of time before they take control of the appliance market, extending from mid- to premium range products.
In response to the intensifying competition, Samsung Electronics and LG Electronics plan to broaden their scope by focusing on AI appliances and appliance subscriptions to secure profitability. In the first quarter, LG Electronics' subscription business revenue increased by 45% year-on-year to reach 501 billion won, and is expected to exceed 2 trillion won annually. Samsung Electronics is positioning AI appliances as a growth driver. Huang Tae-Hwan, vice president of strategic marketing at Samsung Electronics' DA division, stated during an AI appliance event last March, "We believe that 'the popularization of AI appliances' is the most important way to enhance competitiveness," adding, "The proportion of revenue related to AI appliances is increasing, which will help improve profitability." Additionally, both companies are targeting emerging markets with high growth potential in Southeast Asia, the Middle East, and Africa to seek new revenue streams.
An insider in the appliance industry remarked, "Strengthening AI functions is unlikely to provide a direct solution to the immediate problem of declining profitability, and targeting emerging markets also involves significant upfront investment costs, so it will take time to achieve meaningful performance improvements."