Samsung Expected to Reach End of Record Run - New York Times

SEOUL â€" Samsung Electronics reported a record quarterly profit of 8.1 trillion South Korean won, nearly double the figure of last year, as strong sales of high-end televisions and Galaxy smartphones more than offset reduced orders for chips and screens from , its main rival and leading customer.

Most analysts, however, expect a run of four record quarters â€" the most recent worth $7.3 billion â€" to end in December, as the South Korean group, one of the world’s leading makers of smartphones, televisions and memory chips, increases its marketing, countering the new Apple 5 and other products in a crowded smartphone market, valued at $200 billion globally.

Credit Suisse Group, an international financial services company, estimated that Samsung might have spent about $2.7 billion on marketing in July to September alone during the Olympic Games in London and on Galaxy promotions.

The expected record profit of 28 trillion won would mean higher payouts for performance to many of Samsung’s 206,000 staff members early next year. And Samsung may have to set money aside this quarter if it fails to overturn an appeal of a U.S. court verdict that awarded more than $1 billion in damages to Apple on Aug. 24 for patent infringements by Samsung.

“Fourth-quarter profit will be pressured by one-off expenses: performance payouts and some $1 billion in legal provisioning relating to the Apple litigation,” said Lee Sun-tae, an analyst at NH Investment & Securities.

“Excluding those, core earnings will remain solid, and a swing factor is how much Samsung spends on marketing.”

Analysts expect earnings to decline until the second quarter of next year as a slump in computer sales and a weak global economy sap demand for chips and electronics products.

“The biggest risk for Samsung is competitive product lineups from its rivals, such as the iPhone 5,” said Byun Han-joon, an analyst at KB Investment & Securities.

“Because handsets drive most of its profits, one misstep in handsets could result in losses for the whole Samsung group,” Mr. Byun said.

Profit at Samsung’s mobile division is likely to have more than doubled in the July-to-September period to about 5 trillion won as smartphone shipments topped 58 million, including as many as 20 million of the Galaxy S III.

Ahead of full quarterly results due Oct. 26, Samsung estimated that its July to September operating profit jumped to 8.1 trillion won from a year ago, beating an average forecast of 7.6 trillion won in a survey of analysts.

Strong handset sales made up for reduced profits from its chip business. Prices of dynamic random access memory, or DRAM, chips â€" used in computers and mobile phones â€" dropped 14 percent in the September quarter. Such chips now trade below what it costs most contract manufacturers to make them and will squeeze near-term earnings, analysts say. Tablets and smartphones, the real growth areas, use far smaller memory storage.

Samsung is expected to invest less in chips next year because of the drop in demand, which could be bad news for equipment manufacturers. Kwon Oh-hyun, who became chief executive of Samsung in June, said late last month that the group had yet to complete its 2013 investment plans.

Samsung is strengthening its product lineup, with its latest phone-tablet, the Galaxy Note, expected to go on sale in the United States this month; its ATIV smartphones, which run on Microsoft’s new Windows system, will compete with Nokia’s Lumia series.