Smartphone rings up big profits for Samsung

STRONG SALES of its Galaxy smartphone powered Samsung Electronics to a record operating profit in the second quarter, but the South Korean company’s shares fell despite the strong performance as investors worried that earnings momentum may be peaking.

In its April-June guidance, Samsung estimated operating profit for the period was 6.7 trillion won (€4.8 billion), up 79 per cent from the same quarter a year earlier, and projected sales of Won47 trillion compared with Won39.4 trillion in previous year.

Samsung, the world’s largest smartphone maker by sales, has benefited from strong demand for its new Galaxy S III model ahead of the anticipated introduction of Apple’s next iPhone this year.

The South Korean group, which earlier this year ended Nokia’s 14-year reign as the world’s top handset vendor, has said it expected its latest handset to sell more than 10 million units by July, making it the company’s most successful product thus far.

The company did not give net income or break-down earnings for separate divisions, but analysts estimated operating profit at its telecoms business more than doubled to about Won4.42 trillion from Won1.67 trillion in the quarter, accounting for more than 70 per cent of total earnings.

The popularity of its Galaxy smartphones has helped Samsung keep pace with Apple, shaking off a running legal dispute with its US rival over patents. After Apple won a court order in June blocking sales in the US of Samsung’s Galaxy Nexus phone, all eyes are on the US court case slated for July 30th.

Despite the upbeat guidance, Samsung’s shares fell 2 per cent in mid-afternoon trading in Seoul amid concerns over how long the company can sustain such momentum. The stock has dropped some 15 per cent over the past two months with investors focused on the challenging business environment.

In contrast with telecoms, Samsung’s memory chips and TV divisions were hit by slowing demand and lower prices in the quarter. Operating profit at the chip division is estimated to have fallen nearly 30 per cent to Won1.3 trillion as demand for PCs wanes. – Copyright The Financial Times Limited 2012