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Fri 5 Oct 2012 12:45 PM

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Samsung posts record quarterly profit of $7.3bn

Sales of Galaxy smartphones, high-end TVs more than offset reduced chips orders

Samsung posts record quarterly profit of $7.3bn
South Koreas Samsung Electronics has posted record profits.

Samsung Electronics reported a record quarterly profit of $7.3bn, nearly
double last year's figure, as strong sales of high-end TVs and Galaxy
smartphones more than offset reduced orders for chips and screens from Apple
Inc, its main rival and leading customer.

Most analysts, however, expect a run of four straight record quarters to end
in December as the South Korean group, the world's leading maker of smartphones,
TVs and memory chips, ramps up its marketing to counter Apple's new iPhone and
other products in a crowded $200bn global smartphone market.

Samsung may have spent around $2.7bn on marketing in July-September
alone around the London Olympic Games and new Galaxy promotions, Credit Suisse
has estimated.

This year's expected record profit of 28 trillion won ($25 billion) will also
trigger higher performance related payouts to many of Samsung's 206,000 staff
early next year. And Samsung may have to set money aside this quarter if it
fails in an appeal to overturn an August 24 US court verdict that awarded more
than $1bn in damages to Apple for patent infringements by
Samsung.

"Fourth-quarter profit will be pressured by one-off expenses: performance
payouts and some $1bn in legal provisioning relating to the Apple
litigation. Excluding those, core earnings will remain solid
and a swing factor is how much Samsung spends on marketing," said Lee Sun-tae,
analyst at NH Investment & Securities.

Analysts expect earnings to decline until the second quarter of next year as
a slump in computer sales and a weak global economy sap demand for chips and
electronics products.

"The biggest risk for Samsung is competitive product line-ups from its rivals
such as the iPhone 5. Because handsets drive most of its profits, one misstep in
handsets could result in losses for the whole Samsung group," said Byun
Han-joon, an analyst at KB Investment & Securities.

Profit at Samsung's mobile division is likely to have more than doubled in
July-September to around 5 trillion won - around two thirds of total group
profit - as smartphone shipments topped 58 million, including up to 20 million
Galaxy S IIIs.

Ahead of full quarterly results due by October 26, Samsung estimated its
July-September operating profit jumped 91 percent to 8.1 trillion won from a
year ago, beating an average forecast of 7.6 trillion won in a Reuters survey of
16 analysts.

That would be more than a fifth higher than the previous record in
April-June. The company, valued at around $197bn, estimated its
third-quarter revenue at 52 trillion won, in line with forecasts.

Samsung shares fell 0.5 percent to 1.36 million won ($1,200) on Friday. The
stock has risen more than 7 percent since the US patent defeat in August.
Apple shares have gained less than 1 percent.

Strong handset sales made up for reduced profits from its chip business, as
prices of its mainstay dynamic random access memory (DRAM) chips, used in
computers and mobiles, dropped 14 percent in the September quarter. DRAM chips
now trade below what it costs most contract manufacturers to make them, and will
squeeze near-term earnings, analysts say. Tablets and smartphones, the real
growth areas, use far smaller memory storage.

Samsung is expected to invest less in chips next year due to the drop in
demand, which could be bad news for semiconductor equipment manufacturers such
as ASML. Kwon Oh-hyun, promoted to Samsung CEO in June, said late last month
that the group has yet to finalise its 2013 investment plans.

Samsung is beefing up its product line-up, with the latest phone-cum-tablet
Galaxy Note expected to go on sale in the United States this month, and its ATIV
smartphones that run on Microsoft's new Windows system to compete with Nokia's
Lumia series.

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