Samsung's Galaxy phones drive record $7.3bn profit

Reuters, Friday 5 Oct 2012

South Korean giant sees near-doubling of annual profits on strong sales of its flagship smartphone

Samsung smartphones
Smartphones like the Galaxy Note are behind Samsung's latest success (Photo: Reuters)

Samsung Electronics reported quarterly profit of $7.3 billion - a fourth straight record quarter and nearly double last year's figure - as strong sales of its Galaxy smartphones more than offset reduced orders for chips and screens from Apple Inc, the South Korean group's main rival and leading customer.

But the record run will come to an end in the current quarter as Samsung spends more on marketing to counter Apple's latest iPhone and other rival products in a crowded $200 billion plus global smartphone market.
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 Aug. 24 U.S. court ruling that awarded more than $1 billion in damages to Apple for patent infringements by Samsung.
"Fourth-quarter profit will be pressured by one-off expenses: performance payouts and some $1 billion 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 at the world's top technology firm by revenue to decline until the second quarter of next year as a slump in computer sales and the weak global economy sap demand for chips and electronics products.
Ahead of full quarterly results due by 26 October, Samsung, valued at $197 billion and the world's leading maker of TVs, smartphones and memory chips, estimated its July-September operating profit jumped 91 per cent 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. Samsung estimated its third-quarter revenue at 52 trillion won, in line with market forecasts of 51.7 trillion won.
Samsung shares were up 1.6 per cent at 1.39 million won each early on Friday. The stock has risen more than 7 per cent since a U.S. court ruled on 24 August that the Korean firm copied parts of Apple's iPhone and awarded the California-based firm more than $1 billion in damages. Apple is up less than 1 per cent.
Profit from the mobile division is likely to have more than doubled to around 5 trillion won, or around two thirds of its total profit, as smartphone shipments are estimated at around 58 million, including 18-20 million Galaxy SIIIs.
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 per cent in the September quarter.
Contract prices of DRAM chips now trade below what it costs most manufacturers to make them, and will squeeze near-term earnings, analysts say. Tablets and smartphones, the real growth areas, use far smaller memory storage.
"Meaningful DRAM price increases may be difficult in the near term without more aggressive production cuts," Goldman Sachs said in a client note this week.
Samsung is expected to reduce its investment 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.
Despite a bruising series of patent disputes and the reputational risk of the U.S. court defeat in August, Samsung's brand value has surged this year as it shipped more handsets and smartphones than any of its rivals.
The value of the Samsung brand has jumped to 9th in the world - up from 17th last year - at $32.9 billion, according to brand consultancy Interbrand. That's more than Toyota Motor, but less than half of second-ranked Apple's $76.6 billion.
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