Samsung aims for second year of record profit as memory chips sales rebound

Friday 04 October 2013 18.07
A rebound in its semiconductor business is shielding Samsung from a slower smartphone market
A rebound in its semiconductor business is shielding Samsung from a slower smartphone market

Samsung Electronics is on track to post its second consecutive year of record earnings.

A rebound in its semiconductor business is shielding the South Korean tech giant from a slower smartphone market.

The world's biggest memory chipmaker is likely to see its semiconductor earnings rise to a three-year high, just as sales of its flagship Galaxy S4 smartphone begin to flag, analysts say.

It has rallied since late 2012 due to a supply crunch caused by years of cautious investment to support prices, and conversion of factory capacity to produce more profitable chips used in smartphones and tablets.

The market further tightened following a fire in early September at a China plant owned by SK Hynix, the world's second biggest chipmaker.

The drop in supply helped divert customers to Samsung, whose heavy investment in new chip-making technologies has made it head and shoulders above smaller rivals like Micron Technology.

Samsung is estimated to post an operating profit of 38.5 trillion won ($35.85 billion) this year, up a third from 2012, according to a survey of 45 analysts by Thomson Reuters. The company said today that operating profit is likely to reach a record 10.1 trillion won in the third quarter.

Contract dynamic random access memory (DRAM) chip prices jumped 9% in the second half of September from the first half of that month while spot prices soared 37%.

Samsung estimated third-quarter operating profit rose 25% from a year earlier, the slowest since the third quarter of 2011 when profit shrank 11%.

Samsung's mobile devices business has helped the company report a record profit every quarter since last year, except the first three months of 2013.

The division, which generates two-thirds of the company's total earnings, is stalling as sales of the Galaxy S4 slow and the high-end market rapidly saturates, analysts say.

Barclays estimates S4 smartphone sales will have dropped to 16 million sets in July-September from around 20 million in the two months following its late April debut. Sales may slip further to 13 million sets in the fourth quarter, according to Barclays.

Samsung is widely expected to have sold 86-88 million smartphones in the third quarter, up from 76 million in the second quarter, as the company increased shipments of cheaper models to emerging markets.

Profits at its mobile division are seen at 6.4 trillion won, better than the second quarter's 6.3 trillion won but down from a record 6.5 trillion won in the first three months.

Underscoring the slowing pace of growth in the industry, Taiwan's HTC posted its first ever quarterly loss today, hit by fierce competition and supply chain constraints.

Samsung is now hoping new products such as the Galaxy Gear smartwatch and a curved smartphone, which it plans to introduce this month, to help sustain growth momentum.