Despite all the hype about its cutting-edge TV display technology, Samsung Electronics Co.’s consumer electronics, or TV, division did poorly in profit-making in the first quarter due to disruption in panel supplies from its primary overseas provider Hon Hai Precision Industry Co. of Taiwan.

An unnamed official from the electronics industry said that late last year, Hon Hai Precision Industry, also known as Foxconn, had suddenly informed Samsung Electronics that it will stop supplying TV panels, and this had led the South Korean tech giant to rush to secure panels from other panel manufacturers at higher prices.

Set makers and primary panel suppliers usually make a contract arrangement for at least a year in advance. Because of the pre-arranged tight supply chain, any disruption in supply flow becomes a major headache for the set makers as they must buy panels at spot prices. Panel prices have sharply risen due to rise in demand and tight supply.

From Thursday’s stellar first-quarter earnings report by Samsung Electronics, the consumer electronics division was the only upset. The division raised 380 billion won ($336.7 million) in operating income in the January-March period on sales of 10.34 trillion won. Sales were similar to last year’s but operating profit was down 24 percent over the same period. The rate of profit against sales fell to 3.68 percent from 4.97 percent.

In a conference call, Samsung Electronics blamed the fall in profitability to strengthening in TV panel prices. LG Electronics Inc. on other hand reported more than double the profit rate of Samsung’s.

LG Electronics on the same day reported that its rate of operating income came to its television business came to 8.8 percent in the January-March period and 10.1 percent when adding its home appliance business.

What instead dented its profitability margin in TV-making was the disruption in panel supplies. In December, Hon Hai Prevision Industry had also notified Samsung Electronics that its subsidiary Sharp Corp. will stop supplying its liquid crystal display (LCD) panels. The Korean company had received about 7.3 percent of its LCD supply from Sharp. Samsung Electronics urgently had to turn to its local rival LG Display to secure supplies

Samsung Electronics’ profitability in the first quarter was also affected by a significant increase in marketing cost spent for the launch of its new premium quantum dot-based TV early this year in heated competition with LG Electronics for leadership in the premium display league.

By Kim Dong-eun

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