Smartphone sales give Samsung a profit boost

Samsung Electronics has told investors that its third-quarter profits are on target to beat analyst expectations thanks to the strong performance of its smartphone business, in a sign that its worsening legal disputes with Apple have yet to hurt sales of its flagship Galaxy S handsets.

Samsung, the first big global technology company to give earnings guidance this quarter, estimated its operating profit for the July-September period at about Won4,100bn ($3.5bn). This represents a decline of 14 per cent from a year earlier, largely because its chip and display businesses continue to suffer from cooling demand for televisions and computers amid the global economic slowdown.

But the estimates were still up 12 per cent from the preceding quarter and topped the most bullish market forecasts, demonstrating how Samsung’s Android-based Galaxy S phones have emerged as serious challengers to Apple’s iPhones.

Samsung, which sold only about 1m fewer smartphones than Apple in the second quarter, is widely expected to have overtaken Apple as the biggest smartphone seller in the third quarter.

“The guidance is surprising. Smartphones have certainly become Samsung’s main earnings driver,” said Baek Jong-suk, an analyst at Hyundai Securities.

Mr Baek estimated that the mobile phone business generated more than half of the company’s operating profit in the third quarter, offsetting weaker sales of chips and display panels.

Samsung’s accelerating patent disputes with Apple have failed to dent the South Korean company’s sales of smartphones and tablets in its main markets, analysts said. A court in the Netherlands has banned three Samsung smartphones, while a ruling in Germany last month upheld a ban on its latest tablet. The protracted legal dispute has delayed the release of Samsung’s Galaxy Tab 10.1 in Australia.

However, Samsung’s fortunes could change considerably if Apple’s attempts to secure a US sales ban of Samsung mobile devices succeeds.

Analysts expect Samsung’s smartphone business to maintain its growth momentum in the fourth quarter as its Galaxy S II, which was launched in February, gains increasing popularity, while Apple’s newest iPhone 4S has fallen short of some customers’ expectations. The analysts added that the death this week of Steve Jobs, Apple’s former chief executive, might enable Samsung to seize some market share from its US rival.

“Now that Steve is gone, that could present more opportunities for Samsung as Steve’s absence could weaken Apple’s product competitiveness in the long term,” said Mr Baek.

Samsung recently launched a new version of the Galaxy S II that supports faster fourth-generation networks in order to counter Apple’s latest iPhone 4S. The South Korean company has also become more belligerent in its legal battle with Apple, seeking to block sales of the iPhone 4S in France and Italy.

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