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Samsung’s Record Pressures Rivals as HTC Posts Loss

Samsung Electronics Co. (005930)’s strategy of selling smartphones at every price point spurred record earnings at Asia’s biggest technology company and helped push Taiwanese competitor HTC Corp. (2498) to its first-ever quarterly loss.

Samsung’s third-quarter operating profit rose to about 10.1 trillion won ($9.4 billion), beating analyst estimates, on sales of cheaper handsets in emerging markets. HTC posted a net loss of NT$2.97 billion ($101 million) in the same period as its global smartphone market share plunged by more than half.

While HTC has focused a revival on its flagship One handset and $12 million marketing deal with actor Robert Downey Jr., Samsung has expanded its range of mid-priced smartphones such as the Galaxy Golden and S4 Mini to capture sales in China and India. Samsung also has benefited from rising prices for the memory chips it makes for customers including Apple Inc. (AAPL)

“Companies can’t survive with a single device for more than six months or a year,” said Lee Seung Woo, a Seoul-based analyst at IBK Securities Co. “Samsung’s identity is all about speed, which is something that no one can easily mimic. The market is changing extremely fast.”

The results from both companies were preliminary with no division details released. Audited earnings are due later this month.

Shares of Samsung were unchanged at 1,418,000 won in Seoul yesterday. The stock has dropped 6.8 percent this year, compared with an unchanged benchmark Kospi index.

HTC rose 1.5 percent to NT$135 at the close in Taipei, paring its decline in the past two years to 80 percent.

China, India

Suwon, South Korea-based Samsung, the world’s biggest smartphone maker, is tapping into demand for low-cost Galaxy devices in developing regions, including the Middle East. The biggest chipmaker, which supplies the iPhone 5s, is benefiting from higher prices after a fire at competitor SK Hynix Inc. (000660)’s plant in China hampered production.

“Samsung was able to extend its mid-priced smartphone offerings such as S3 and other Galaxy models, mainly in emerging markets,” said Park Kang Ho, a Seoul-based analyst with Daishin Securities Co. “The fourth quarter looks even better.”

Sales at Samsung were about 59 trillion won in the third quarter, the company said yesterday. That compares with the 59.7 trillion-won average of 36 estimates.

Samsung sells at least 40 smartphone models, according to its U.S. website, helping it weather stalling demand for high-end devices. That compares to about 25 devices listed by HTC.

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HTC posted revenue of NT$47 billion in the quarter, with revenue declining for eight straight quarters. Tepid sales in May led AT&T Inc., the second-largest U.S. wireless carrier, to cut the price of HTC’s First handset and consider dropping the device that integrates Facebook Inc. social-networking features.

The release of the HTC One was delayed amid a shortage of camera components, which pushed it into the same timeframe as Samsung’s flagship Galaxy S4.

“HTC needs to figure out if it just wants to focus on the high-end market or the mid- to low-end segment, and right now it is missing out on both,” said Wang Wanli, a Taipei-based analyst at CIMB Securities Ltd.

HTC is considering a proposal by Microsoft Corp. to add its Windows operating system to smartphones using Google Inc.’s Android software at little or no cost, people with knowledge of the matter said.

IPhone Sales

Samsung rolled out lower-cost versions of its Galaxy series, including the Mini and Golden, and continued selling the older S3. The Mini and S3 together outsold the iPhone 5 and Galaxy S4 in the Middle East, according to market researcher International Data Corp

Third-quarter operating profit at Samsung’s mobile unit, the company’s biggest business, rose to 6.3 trillion won after sales increased 25 percent, according to the median estimate of six analysts surveyed by Bloomberg News.

Samsung shipped 85 million smartphones in the third quarter, up from 75 million units in the previous quarter, according to an estimate by Daewoo Securities Co.

Apple sold a record 9 million iPhones in the first weekend of sales last month as the company rolled out the 5s and 5c handsets to markets including China, Japan and the U.S. The debut led the Cupertino, California-based company to say quarterly revenue and gross margins will be at the top end of a prior forecast.

Profit at Samsung’s chip division more than doubled to 2.1 trillion won on sales of 9.6 trillion won, according to the Bloomberg News survey of analyst estimates.

The A7 processor inside Apple’s new iPhone 5s was made by Samsung, according to a teardown of the handset by IFixit.

Chip prices surged to their highest levels in more than two years after the SK Hynix factory fire in Wuxi, China. SK Hynix’s customers include Apple, Sony and Dell Inc.

The price of the benchmark DDR3 2-gigabit dynamic random-access memory chip reached $2.34 yesterday, according to DRAMeXchange, Asia’s largest market for the components. That compares with $1.60 on Sept. 4, when the fire hit Hynix’s factory.

To contact the reporters on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net; Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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A man walks past an advertisement for Samsung Electronics Co. Galaxy Note 3 smartphone and Galaxy Gear smartwatch at the company's flagship store in Seoul.

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A man walks past an advertisement for Samsung Electronics Co. Galaxy Note 3 smartphone and Galaxy Gear smartwatch at the company's flagship store in Seoul. Close

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A man using a mobile phone walks past a Samsung Electronics Co. booth at the World IT Show 2013 in Seoul. Close

A man using a mobile phone walks past a Samsung Electronics Co. booth at the World IT Show 2013 in Seoul.

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Attendees try out Samsung Electronics Co. Galaxy Note 3 smartphones and Galaxy Gear smartwatches at the launch event for the two devices in Seoul on Sept. 25, 2013. Close

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An event employee holds up a Samsung Electronics Co. Galaxy Note 3 smartphone at the launch event for the company's Galaxy Note 3 smartphone and Galaxy Gear smartwatch in Seoul. Samsung may have sold 3 million of its Note 3 devices since the Sept. 25 release. Close

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