Samsung flags nearly 80% jump in Q3 operating profit

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SEOUL: South Korea’s Samsung Electronics flagged a nearly 80 percent jump in quarterly profit Wednesday, as sales of chips and displays offset stiff competition in smartphones from Apple and cheaper Chinese rivals.

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The stellar earnings forecast sent shares soaring 8.7 percent by the closing bell.

Samsung predicted operating profit of around 7.3 trillion won ($6.23 billion) for July-September, up from 4.1 trillion a year earlier and 6.9 trillion won the previous quarter.

The firm’s flagship smartphone business is struggling against fierce competition, sandwiched between top-end rivals like Apple’s iPhone and lower-end devices from fast-growing Chinese outfits including Xiaomi.

Sales of the Galaxy S6 — the latest edition of its top-of-the-range handset, launched in April — failed to generate much excitement.

But brisk business in chips and displays has largely compensated for these difficulties, analysts said.

In addition to providing the chips for its own handsets, Samsung’s semiconductor unit also makes the processors for a number of other companies, including Apple.

The firm’s TV business — the world’s largest — also helped shore up the balance sheet in the third quarter, said Lee Seung-Woo, analyst at IBK Securities.

A recent weakening of the won — down 12 percent year-on-year against the dollar by the end of the third quarter — helped boost profits since most sales of semiconductors and display panels to emerging markets are settled in dollars, he added.

A weaker won makes South Korean exports more competitive overseas and boosts earnings when repatriated.

“With sluggish sales of Galaxy S6… the (semiconductor and TV) businesses were a major factor behind the surprise earnings,” Lee said.

Hwang Min-Sung, an analyst at Samsung Securities Co., said shipments of smartphones apparently surged to 83 million units in the third quarter from 72 million units three months earlier.

“But the division’s profitability probably worsened due to falling prices”, he said.

Samsung did not provide breakdowns for each division, but Meritz Securities estimated the IT and mobile sector including smartphone businesses reaped a 2.1 trillion won operating profit in the third quarter, down from the previous quarter’s 2.7 trillion won.

The third-quarter operating profit prediction beat the estimate of 6.7 trillion won given by analysts surveyed by Bloomberg News.

Sales for the third quarter are expected to reach 51 trillion won, up 7.5 percent from a year earlier, the company said in a statement.

Wednesday’s estimate, which comes ahead of audited results later this month, did not give a net income figure or a breakdown of divisional earnings.

After peaking at 10.1 trillion won in the third quarter of 2013, Samsung’s operating profit fell to 4.6 trillion won in the corresponding period of 2014 before recovering gradually.

As its reliance on the chipmaking business grew, the firm in May began building a new $14.3 billion chip plant at Pyeongtaek south of Seoul.

The investment in the factory, which is to begin production in 2017, is the largest the firm has ever committed to a single plant.

AFP

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