Last updated: January 6, 2012 9:43 am

Smartphones drive record Samsung profit

Samsung Electronics, the world’s largest technology group by sales, defied the slowing global economy with record profit in the fourth quarter of 2011, and expects the strong momentum to continue this year driven by robust smartphone sales.

The South Korean company on Friday said it estimated its operating profit for the October-December period at an all-time high of Won5.2tn ($4.5bn), up 73 per cent from the same period a year earlier. It said preliminary fourth-quarter sales rose 12 per cent to about Won47tn. Samsung will announce full results later this month.

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Samsung attributed the robust projections to the strong performance of its handset division, further bolstered by a one-time gain from the $1.4bn sale of its hard disk drive business to Seagate Technology of the US, a deal it said closed last month.

The company was a minor player in the booming global smartphone market just two years ago but has capitalised on a rich product line-up, including its popular Galaxy phones, to surpass Apple as the world’s largest smartphone seller by shipments in the third quarter.

Samsung is expected to have sold a record 35m smartphones in the fourth quarter, up from 27.8m units in the third quarter.

For full-year 2011, Samsung expects operating profit of Won16.2tn on record sales of Won164.7tn.

The strong results indicate that continuing legal battles with Apple have not hurt sales of Samsung’s mobile devices. Apple is seeking to ban sales of Samsung’s smartphones and tablets in large markets, claiming that Samsung has copied its design and technology.

Analysts expect Samsung to continue to expand its share of the smartphone market this year. Its latest devices including the Galaxy Nexus and the Galaxy Note have been well received while new models from rivals such as HTC, Nokia and BlackBerry-maker Research In Motion have failed to impress consumers.

HTC on Friday reported its first decline in quarterly profit in two years. The world’s fifth-largest smartphone maker by volume said net profit in the fourth quarter of 2011 fell 26 per cent from the previous quarter to T$11.02bn ($364m). Full-year net profit was up 57 per cent to T$62bn.

The Taiwanese group in November warned investors to expect weak results, blaming stiffer competition from Samsung and Apple as well as a slower overall market. Most analysts predict a gradual recovery starting only in the second half of the year.

Analysts expect Samsung to sell as many as 170m smartphones this year, compared with an estimated 95m last year, as it moves to set its smartphones apart with advanced 4G and display technologies.

“We expect Samsung to build on its supremacy as it has many models to tackle various segments of the market, while Apple basically has only one model targeted at the high-end of the market,” said Jae Lee at Daiwa Securities.

Samsung last month had to buy Sony’s stake in its flat panel joint venture as Sony extricated itself amid predictions of an eighth consecutive year of losses from televisions.

But although its component businesses continue to feel the pinch of falling prices for chips and flat panels, Samsung is expected to ride out the downturn as it diversifies into speciality chips and rivals increasingly turn to the South Korean group for components for their mobile devices.

Nevertheless, Samsung has warned of tougher business conditions for 2012 as the global economic slowdown cools demand for the country’s products, with Lee Kun-hee, Samsung’s chairman, calling for more flexibility and innovation.

Samsung’s shares were down 0.8 per cent midday in Seoul on profit-taking, after hitting a record high of Won1.11m earlier this week on anticipation of strong earnings. The stock gained 11 per cent last year.

Additional reporting by Robin Kwong in Taipei

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