Galaxy lifts Samsung profit to record

Surging mobile handset sales drove earnings at Samsung Electronics to another record in the fourth quarter of last year, despite the competitive threat from Apple’s iPhone 5.

The South Korean group’s operating profit hit a record for the fifth successive quarter, rising 88 per cent from a year earlier to about Won8.8tn ($8.27bn), it said in preliminary guidance published on Tuesday. Revenue rose 18 per cent to about Won56tn.

Although Samsung did not provide a breakdown of the results, analysts believe the profit growth was driven by the handset business, which accounted for about two-thirds of earnings in the previous quarter.

Samsung has established itself as the leading smartphone maker by unit sales with a product range that stretches from premium to low-end devices, unlike Apple, which focuses on the top end of the market.

Apple won a hard-fought US legal battle when a California court in August ordered Samsung to pay $1bn for infringing patents related to the iPhone.

The legal tussle has continued, with Apple last month appealing against a US judge’s refusal to ban some Samsung products from sale in the country.

In September, Apple unveiled the iPhone 5 amid feverish publicity, followed the next month by a miniature version of the iPad.

However, analysts said Apple’s introduction of competing devices had failed to slow Sam­sung’s momentum.

Daniel Kim at Macquarie Securities estimated that Samsung sold in the region of 15m units of its flagship Galaxy S3 smartphone in the period and about 8m of its Galaxy Note 2 miniature tablet.

Samsung phones that use Microsoft’s Windows Phone 8 operating system will go on sale in the US early this year, as the company seeks to diversify beyond Google’s Android system.

However, the rapid growth of the handset business threatened to leave Samsung “too dependent on a single profit source”, Mr Kim added.

While Samsung is the world’s leading producer of memory chips, smartphone application processors and televisions, these businesses combined contribute a fraction of the profits generated by the smartphone division.

The operating profit figure was ahead of analysts’ consensus forecasts of Won8.5tn compiled by Bloomberg, but the shares fell 0.9 per cent in morning trading in Seoul.

Marcello Ahn, an analyst at Nomura, said investors were taking profits following a strong run that had seen the shares rise 19 per cent since the beginning of September.

“For the share price to move by another jump from this level, we must see Samsung diversifying its [earnings base] into tablets and PCs,” he said.

Another important factor in Samsung’s performance this year will be the impact of its next flagship smartphone, which is expected to be released in the second quarter of the year.