Samsung Quarterly Profit Beats Estimates on Galaxy Phones

Samsung 3rd-Quarter Profit Beats Estimates on Galaxy Phones
A Samsung Galaxy S III smartphone displayed for sale in Bangkok. Photographer: Brent Lewin/Bloomberg

Samsung Electronics Co., the world’s biggest maker of TVs and mobile phones, reported a record profit surpassing analysts’ estimates as the popularity of its Galaxy devices helped widen the sales lead over Apple Inc.’s iPhone.

Operating profit jumped 91 percent to 8.10 trillion won ($7.3 billion) in the three months ended in September, Asia’s biggest consumer electronics company said in a statement today. The average of 32 analysts’ estimates compiled by Bloomberg was 7.58 trillion won.

Earnings at the mobile-phone business surged 93 percent in the quarter with the May debut of the Galaxy S III and the Note, according to a Bloomberg News survey of six analysts, helping mask a slump in profit from selling computer-memory chips. TV sales also helped Suwon, South Korea-based Samsung, which lost a California patent trial in August to rival and its biggest customer Apple.

“Sales have been very, very good around the world despite the best efforts of Apple to restrain them,” Mark Newman, a Hong Kong-based senior analyst at Sanford C. Bernstein, said in an interview on Bloomberg Television’s “First Up.” “There’s a lot of growth left in the company, and I would think that it can go a lot higher.”

Samsung shares rose 0.2 percent to 1,370,000 won at the close of trading in Seoul. The stock has gained 29 percent this year, adding to three consecutive years of advances.

Galaxy, Note

The won strengthened to an 11-month high today, a move that typically damps the overseas earnings of companies when repatriated into local currency. Samsung got 84.15 percent of its revenue outside South Korea last year, according to data compiled by Bloomberg.

Samsung’s third-quarter sales totaled 52 trillion won, the company said in the statement. That compared with an estimate for 51.6 trillion won.

Operating profit may be 200 billion won higher or lower than today’s preliminary estimate when audited results are announced later this month, Samsung said. The company didn’t provide net income figures or a breakdown of divisional earnings.

Third-quarter operating profit at the telecommunications unit, Samsung’s biggest business, almost doubled to 4.87 trillion won after sales increased 80 percent, according to the Bloomberg News survey.

IPhone Debut

Samsung probably shipped 57.1 million smartphones in the third quarter, according to Seoul-based Daishin Securities Co.’s estimate. That would surpass the 50.5 million units Samsung shipped in the previous quarter, a record amount for a single vendor, according to estimates from industry researcher Strategy Analytics.

Sales of the Galaxy S III surpassed 20 million units in the 100 days after its May debut, Samsung said Sept. 6. The company also is marketing the Galaxy Note II phone, equipped with a pen and a larger screen than the S III, after the first version sold more than 10 million units.

“Thanks to the successful launch of the Galaxy Note II, Samsung’s smartphone earnings will stay on the steady trend in the fourth quarter,” Shin Hyun Joon, a Seoul-based analyst at Dongbu Securities Co., said in a Sept. 28 report.

Samsung shipped about 32.3 percent of all smartphones in the quarter ended in June, with Apple second at 16.7 percent, according to data compiled by Bloomberg. In the first quarter, Samsung had 28.9 percent and Apple 23 percent.

Apple, lagging behind only Samsung in the $219 billion global smartphone market, last month started selling the iPhone 5 with a bigger screen, lightweight body design and a faster processor than previous models.

Jury Verdict

Cupertino, California-based Apple reported debut weekend sales of more than 5 million units, falling short of some analysts’ estimates after supply constraints delayed shipments.

Samsung and Apple are also battling in court regarding patents protecting their devices, with each accusing the other of copying their intellectual property.

The companies have traded victories, with Apple winning more than $1 billion in damages Aug. 24 after a jury in San Jose, California, ruled that the South Korean company infringed six of seven patents at stake in the trial.

Apple is seeking a U.S. ban on eight Samsung smartphone models and a tablet computer. Apple later included the Galaxy S III in another list of products it says infringes its patents.

Samsung subsequently won a court order rescinding a ban on U.S. sales of the Galaxy Tab 10.1 tablet computer. The company also filed claims that the iPhone 5 infringes its patents.

Chip Prices

On Oct. 3, Samsung requested a dismissal of the August jury verdict, saying the trial was tainted by the foreman’s failure to disclose a lawsuit and his personal bankruptcy.

Profit at the semiconductor division fell 24 percent to 1.2 trillion won on sales of 9 trillion won, according to the survey. Samsung is the world’s biggest maker of computer-memory chips.

The price of the benchmark DDR3 2-gigabit DRAM closed at 84 cents on Oct. 2, compared with about $1.10 a year earlier, amid slowing sales of personal computers, according to data from Taipei-based DRAMeXchange, operator of Asia’s largest spot market for semiconductors.

Micron Technology Inc., which agreed to buy Japan’s Elpida Memory Inc. to double its market share in the computer-memory business, last month reported a wider fourth-quarter loss.

Samsung is accelerating its diversification away from PC memory to more profitable products used in mobile devices.

IPhone Processors

The company, the biggest semiconductor supplier for Apple and the exclusive manufacturer of processors powering the iPhone, said in August it will invest about $4 billion in its Texas factory to boost output of the processors in smartphones and tablet computers.

Samsung’s display business had an operating profit of 875 billion won, compared with a loss of 90 billion won a year earlier, according to the survey.

The company is benefitting from demand for displays used in mobile devices as sales of flat-screen TVs stagnate. Sales of mid- to small-sized screens probably accounted for 65 percent of operating profit at the display business, according to IBK Securities Co.’s estimates.

TV Shipments

Samsung is unveiling new technologies including OLED, 3-D and Internet-enabled TVs. The sets using OLED, or organic light-emitting diode, displays are thinner and produce sharper and brighter images than current liquid-crystal-display models.

Global TV shipments last year fell for the first time since 2004, according to DisplaySearch, part of NPD Group. Worldwide TV shipments fell 8 percent in the second quarter from a year ago, the research company said Sept. 11.

Operating profit at Samsung’s consumer-electronics business, including TV operations, probably rose to 585 billion won from 240 billion won a year ago even as sales fell 15 percent, helped by high-end models featuring the latest display technology and Web-based services, according to the survey.

“TVs are steadily getting better,” Lee Sun Tae, a Seoul-based analyst at NH Investment & Securities Co., said by phone before today’s announcement. “If consumer sentiment recovers, people will buy what they had avoided buying, and TVs are among them.”

Following is a table showing median operating-profit estimates for the four main business divisions of Samsung. The estimates are in billions of won and (-) indicates a loss.

DIVISION             3Q 2012               3Q 2011

Chip                  1215                  1590
LCD                    875                   -90
Phone                 4872                  2520
TV                     585                   240
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