Samsung Surges Most Since 2009 as Profit Beats Estimates

Galaxy Gear

An attendee tries a video game on a Samsung Electronics Co. Galaxy Gear Virtual-Reality headset at the Tokyo Game Show 2015 at Makuhari Messe in Chiba, Japan.

Photographer: Tomohiro Ohsumi/Bloomberg
  • Weaker Korean won boosting chip sales settled in U.S. dollars
  • Chips have overtaken mobiles as biggest source of profit

Investors have punished Samsung Electronics Co. this year for its struggles against Apple Inc. and Chinese makers. They just gave it a $13 billion vote of confidence.

Shares surged the most in more than six years as a revamped smartphone lineup and a renewed focus on components gains traction. Earnings jumped 80 percent in the September quarter, beating estimates and snapping a streak of seven consecutive declines.

After climbing to the top of the global smartphone market, Samsung came under siege from iPhones at the premium end of the market and inexpensive devices from Xiaomi Corp. that won over budget consumers. While the South Korean company responded by investing billions of dollars in semiconductor and display factories to supply its rivals, analysts cut earnings estimates and helped drive the stock toward a third straight annual slide.

“Today’s surprise results show those blue days are finally over and lend support to the market that it’s about time to give Samsung another look,” said Peter Yu, an analyst at BNP Paribas SA in Seoul. “Analysts will now have to revise up their estimates, and it’s been a while since they’ve done that.”

After Wednesday’s rally, Samsung shares closed at 1,251,000 won in Seoul, increasing its market value by 14.7 trillion won ($13 billion). That cut the company’s loss in market capitalization this year by more than half.

Revenue rose about 7.5 percent to 51 trillion won in the quarter, the Suwon-based company said. Samsung didn’t provide net income or details of division earnings, with audited results scheduled for later this month.

Chip Expansion

The decline in the South Korean currency has helped Samsung, which sets prices for most components in U.S. dollars and gains a benefit when those sales are translated back into won. The U.S. dollar was about 11 percent higher against the won at the end of the quarter compared with a year earlier.

Earnings from semiconductors, a business that supplies Samsung’s own devices and those of competitors including Apple, probably rose 54 percent to about 3.5 trillion won in the quarter, according to the median estimate of six analysts surveyed by Bloomberg News.

Samsung, which is spending 15.6 trillion won on a new plant in South Korea, said last month it wants to expand the logic, or processing, chips business to add to its leading position in memory. The company opened a new semiconductor research-and-design center in Santa Clara, California, last month.

“The time has come to reassess the value of the company’s component sectors,” said Lee Jae Yun, an analyst at Yuanta Securities Korea Co. “The third-quarter results threw a good signal that the two-year-long earnings downturn has finally ended.”

Price Cuts

Analysts expect profit in mobile devices rose 24 percent to 2.2 trillion won, the first year-on-year increase in seven quarters.

Samsung released the Galaxy S6 Edge Plus and Note 5 in August, beating new iPhones to the market by about a month. They debuted after lackluster sales of the premium Galaxy S6 prompted price cuts and a $120 rebate to customers buying on installments or a leasing plan.

Samsung shipped about 81 million phones in the third quarter, according to the analyst survey. The company shipped 72 million units in the previous quarter.

“The result was a surprise and the biggest help was its component businesses,” said Song Myung Sup, a Seoul-based analyst at HI Investment & Securities Co. “The chips and display units outperformed the product divisions, largely helped by the weaker Korean won.”

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