Samsung’s Galaxy Phones Drive Record $7.3 Billion Profit

Samsung Electronics reported quarterly profit of $7.3 billion on Friday, 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 August 24 U.S. court ruling that awarded more than $1 billion in damages to Apple for patent infringements by Samsung.

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 October 26, 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 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. Samsung estimated its third-quarter revenue at 52 trillion won, in line with market forecasts of 51.7 trillion won.

Samsung shares have risen 7.2 percent since a U.S. court ruled on August 24 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 percent.

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 S IIIs.

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.

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, who moved into Samsung’s CEO seat in June, said late last month that the group has yet to finalise its 2013 investment plans.

Via: Reuters

Image Credit: The Verge