Samsung Q3 2012 Profits Surge To Record $7.3 Billion, Thanks To Strong Smartphone Sales

By Alexandra Burlacu | Oct 06, 2012 10:52 AM EDT

Previous image Enlarge Close Next image

Share This Story

Strong smartphone sales boosted Samsung Electronics above market expectations in the last quarters, helping the company achieve an operating profit increase of more than 85 percent. Samsung, the world's biggest technology firm by revenue, estimated its third quarter operating profit at 8.1 trillion Korean won ($7.3 billion), largely due to the strong sales of its Galaxy line of smartphones.

The figure marks the company's fourth straight record, as strong Galaxy sales topped the average forecast of 7.6 trillion won estimated in a Reuters survey of 16 analysts.

The earnings guidance issued on Friday also came with a predicted 26 percent surge in sales to 52 trillion won in the third quarter, despite uncertainties surrounding the South Korean company's ongoing patent battle with Apple. Samsung will post its official results for the full quarter later this month.

The projected operating profit for the quarter marks a 90.5 percent increase from the previous year, and beats the previous record of 6.7 trillion won set in the second quarter. The estimate boosted the company's shares by 1.5 percent to 1.387 million won at the opening in Seoul - Samsung's highest in five months - but shares later dropped back to close at 1.370 million won.

Booming smartphone sales helped Samsung overtake Apple as the world's biggest device maker, and the company's operating profits have increased every quarter since the first three months of 2011. Samsung's shares, however, have been under pressure due to a legal battle with Apple.

The South Korean giant faced a significant setback in late August when a U.S. federal jury found that Samsung had infringed some of Apple's design and software patents, and issued a fine of more than $1 billion. Samsung said it would appeal that ruling.

The global legal battle, spanning about 10 countries, has led to an even more intense market battle between Samsung's flagship Galaxy S3 smartphone and Apple's recently launched iPhone 5.

While Samsung announced record profit estimates for the last quarter, it also warned that the good news may not last due to stronger competition from the iPhone 5.

Galaxy S3 shipments accounted for an estimated 18 million units for the third quarter, while smartphone and overall mobile device shipments are projected at 59 million and 106 million units, respectively. According to some analysts, operating profit at Samsung's mobile business may slightly drop in the fourth quarter, partly due to higher marketing costs in the increasingly competitive market.

"The third quarter may be the peak in terms of earnings," said NH Investment and Securities analyst Lee Sun-Tae, as cited by the AFP. "The fourth quarter operating profit is expected to decrease...as slower profit at its telecom unit seems inevitable due to an increase in marketing expenses."

"Fourth-quarter profit will be pressured by one-off expenses: performance payouts and some $1 billion in legal provisioning relating to the Apple litigation," added the analyst. "Excluding those, core earnings will remain solid and a swing factor is how much Samsung depends on marketing."

KDB Daewoo Securities analyst James Song, however, said he expects Samsung's mobile business sales to remain strong and keep profits high, with fourth quarter earnings "about the same" as the third quarter.

Meanwhile, stronger earnings at the company's flat-panel display and television units helped offset the poor third quarter performance of its chip business, which struggled with falling prices for memory chips used in PCs.