Phone sales drive Samsung to record $7.3bn profit
Samsung has reported a record quarterly profit of $7.3 billion, 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.
Most analysts, however, expect a run of four straight record quarters to end in December as the South Korean group ramps up its marketing to counter Apple’s new iPhone and other products in a crowded $200 billion global smartphone market.
Samsung may have spent around $2.7 billion 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 a US court verdict that awarded more than $1 billion in damages to Apple for patent infringements by Samsung.
Because handsets drive most of its profits, one misstep in handsets could result in losses for the whole Samsung group
“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 and 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.
Strong handset sales made up for reduced profits from its chip business, as prices of its mainstay DRAM chips, used in computers and mobiles, dropped 14% 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.
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.