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Samsung flags nearly 80% jump in Q3 operating profit

/ 12:12 PM October 07, 2015
Samsung

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SEOUL, South Korea—Samsung 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.

The stellar earnings forecast sent shares in the South Korean company soaring more than five percent in mid-morning trade.

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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 Samsung’s top-of-the-range handset, launched in April—failed to generate much excitement among consumers.

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

That is because as well as providing the chips for the company’s 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 as most sales of semiconductors and display panels to emerging markets are settled in US 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.

The semiconductor unit posted record sales of 11.2 trillion won ($9.6 billion) in the second quarter, with operating profit soaring more than 50 percent on-year.

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Third-quarter operating profit from the two business units are expected to increase by 500 billion won from the second quarter, said Choi Do-Yeon, an analyst at Kyobo Securities.

Overall, Samsung predicted an operating profit of around 7.3 trillion won for the July-September period, up from 4.1 trillion a year earlier.

The prediction beats 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 ago, the company said in a statement.

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

After peaking at 10.1 trillion won in the third quarter of 2013, Samsung’s operating profit hit a bottom of 4.6 trillion won in the corresponding period of 2014 before climbing back up gradually.

As Samsung’s reliance on the chipmaking business grew, the firm in May began building a new $14.3 billion chip plant in Pyeongtaek, 65 kilometers (40 miles) south of Seoul.

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

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TAGS: Earnings, estimate, S. Korea, samsung
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