Samsung forecasts Q3 profit to rise 25%

Samsung Electronics Co estimated its July-September earnings rose 25% to a record $9.4 billion (10.1 trillion won) amid a strong recovery in memory chip prices which helped counter a slight slowdown in the South Korean companys smartphone business.

The South Korean firm estimated its third-quarter sales rose to 59 trillion won, versus a market forecast of 60 trillion won.

The South Korean group’s share price slipped by more than 10% cent during the summer, as investors worried that strong competition and squeezed margins in the smartphone industry, could hurt the company as it is relying mostly on sales volume.
The earnings for the second quarter, in spite of rising 47% year-on-year, undershot analyst forecasts, soon after JP Morgan and Morgan Stanley cut their forecasts for sales of the flagship Galaxy S4 phone.

However, Samsung has recovered some of those losses over the past few weeks amid signs of a sustained recovery in the semiconductor business, which used to be the group’s main earnings driver but has been suffering from a glut of supply in the sector for much of the past few years.

“Memory [chips], not handsets, is driving Samsung’s next leg of profit growth,” Mark Newman, an analyst at Bernstein, wrote this week, cited by Financial Times.

Mergers and elimination of smaller competitors have resulted in a memory chip sector with high barriers to entry, with strong competition, and in which the main producers are holding back from significant capacity expansion, boosting prices.

The semiconductor market further rose prices after a fire in early September at a China plant owned by the worlds No.2 memory chipmaker SK Hynix.

“We expect earnings to improve to 10.7 trillion won in the current quarter, as computer memory chip prices are rising thanks to the fire at the Hynix plant.”

Companys smartphone business, which accounts for around two-thirds of the companys total profit, is struggling with weakening growth as the high-end segment of the smartphone market saturates, pushing sales of its flagship Galaxy S4 lower.

Analysts estimate S4 sales dropped to around 16 million sets in the third quarter from some 20 million in the two months following the smartphones late April launch.