Samsung profits at record high

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REUTERS

A man walks past the main office of Samsung Electronics in Seoul December 8, 2010.

Samsung Electronics Co. estimated Friday its third-quarter operating profit nearly doubled from a year earlier to an all-time high, likely driven by strong smartphones sales that offset weak semiconductor orders.

The company's earnings preview estimated July-September operating income at 8.1 trillion won ($7.3 billion), compared with 4.25 trillion won in the year-earlier period.

The operating profit beats the market consensus of 7.6 trillion won according to a poll of 26 analysts by FnGuide Inc., a financial information provider. It also is 21 percent growth from its previous record high posted in the April-March quarter. 

The world's largest maker of mobile phones, memory chips and TVs estimated its quarterly revenue at 52 trillion won, a 26 percent growth from a year earlier.

Shares of Samsung opened 0.2 percent higher in Seoul after the preliminary earnings announcement. Samsung will announce its full quarterly results including net income and breakdown figures for each division toward the end of this month. 

Analysts believe Samsung's IT and Mobile Communications team that sells smartphones, media players and tablet computers generated almost 70 percent of its operating income in the last quarter.

Since October 2011, the South Korean firm renewed its all-time high figure for operating profit every quarter, as runaway demand for its Android-powered smartphones outweighed weak orders of memory chips and thin margins in television sales. Samsung surpassed Apple and Nokia in annual smartphone sales for the first time in 2011, according to Strategy Analytics.

Nomura Securities estimates Samsung sold 60 million smartphones in the three months ending September 30, including 18 million units of the Galaxy S III. That is above 50 million smartphones that Samsung is believed to have sold in April-June. The company does not update its quarterly smartphone sales to public.

Its record-setting profit is expected to halt, however, as fourth-quarter bottom line is likely to decline with seasonally weak demand for semiconductors and increased marketing spending to compete with rival mobile phone makers. New smartphone models from Apple, Motorola, Nokia and LG Electronics are jostling for attention in fall and winter and will call for larger handset subsidies to attract consumers.

Samsung is also trying to overturn the U.S. jury's August verdict that it should pay Apple $1 billion for patent infringements. The judge's decision is expected in December.

But a bigger threat to Samsung's earnings will be the handset price war, analysts said. High-end smartphone sales that fueled Samsung's earnings growth since last year may not be as lucrative next year because competition with Apple could pressure margin and the smartphone adoption in the developed countries matures. 

“The price competition in the high-end smartphone is top risk,” Nomura analyst Marcello Ahn said. “The high-end smartphone market is split between Samsung and Apple, with their operating profit margins staying high at 30 - 50 percent at present. Going forward, if price competition between the two intensifies, we think smartphone margins may decline at a pace faster than our expectation.”

The slow revival in the global economy as well as the persistent debt crisis in Europe could delay a revival in the personal computer industry, crippling sales of memory chips.