Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Record operating profit at Samsung Electronics Co. serves to justify the share's 33 percent run-up this year, especially after the company shook off last year's battery crisis. 

Earnings, however, are merely a report card for past events. Stock price tracks how the market sees the present, and more importantly the future.

Wow
Look at the past year in Samsung stock, and compare it to the previous four years
Source: Bloomberg

Wholehearted congratulations are in order for Samsung and its management for pulling off revenue and operating income that beat estimates. Now they need to repeat the performance. 

A 113 percent rise in Samsung shares since January last year has been matched by a similar scale of earnings expansion. Things look rosy for the coming quarter too as the South Korean company enjoys a near-monopoly over OLED displays and a commanding position in memory chips ahead of the 10th anniversary update of Apple Inc.'s iPhone.

Justified Confidence
Samsung's operating profit has spiked along with its share price
Source: Bloomberg

In the longer term, there will be challenges. Its logic chip business, which counted the iPhone maker as a client, is under siege from Taiwan Semiconductor Manufacturing Co., while Apple itself is working hard to find new suppliers for OLED screens. In phones, a raft of Chinese contenders are getting increasingly better at churning out credible alternatives.

Samsung itself thinks the dominance will continue, evidenced by announcements this week of 20.4 trillion won ($18 billion) in new semiconductor investments as well as possible expansion in display-manufacturing capacity.

With the global electronics industry slowing, this amounts to a land grab. That's a dangerous game that could end up hurting even the largest players, though smaller rivals will feel the pain most. Samsung's size means another round of overcapacity would probably play to its advantage, but the giant still wouldn't escape unscathed.

In the interim, investors need to decide whether they want to come along for the ride in the hope of squeezing a little more out of the stock -- or take their profits and look elsewhere.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net