Smartphones power record Samsung profit

By Miyoung Kim

January 26, 2012 10:14 PM EST

Samsung Electronics Co posted a record $4.7 billion quarterly operating profit, driven by booming smartphone sales, and will spend $22 billion this year to boost production of chips and flat screens to pull further ahead of smaller rivals.

The South Korean firm, the world's top technology firm by revenue, is locked in breakneck competition with Apple Inc in the red-hot smartphone market, and said its telecoms business earned a record 2.64 trillion won profit in October-December on increased sales of its flagship Galaxy smartphones.

"The battle of the two big smartphone powers, Apple versus Samsung, will go on," said Baik Jae-yer, fund manager at Korea Investment Management, which has around 9 percent of its portfolio in Samsung stock, according to end-September filings.

"The smartphone market will expand this year to more mid-and low-end models that are affordable to the wider public," Baik said. "Rather than focus on market share, I'd point out the strong contribution of Samsung's handset business to earnings growth and margins."

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Samsung's October-December operating profit of 5.3 trillion won was broadly in line with its earlier estimate and topped the previous record profit of 5 trillion won in the second quarter of 2010. The profit was up 76 percent from a year ago and 25 percent higher than in the third quarter.

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Samsung trails Nokia in the overall mobile phone market, competes with Sony Corp and LG Electronics Inc in televisions, Toshiba and Hynix in chips and LG Display in displays.

Samsung will increase spending this year by 9 percent to 25 trillion won - more than the GDP of leading cocoa producer Ivory Coast - with 15 trillion won going to the chips division, 6.6 trillion won to flat screens and the rest to boosting overseas production capacity and new research and development centers.

APPLE BATTLE

Apple, overtaken by Samsung as the world's biggest maker of smartphones in the third quarter, looks sure to have regained top spot in the fourth quarter, with record sales of 37.04 million iPhones.

Samsung did not provide its own sales volume data for the fourth quarter, but said smartphone shipments rose by around 30 percent, suggesting sales of around 36 million, in line with analysts' estimates of 35-37 million.

Smartphones account for close to a third of Samsung's total handset shipments, according to data from industry research firms.

Samsung, which only entered the smartphone market in earnest in 2010, some three years after Apple introduced the iPhone with the touchscreen template, has adopted the U.S. company's breakthrough concept probably better than other handset makers - and now seeks to offer the Apple experience at a better price, with better functionality.

Apple is Samsung's biggest client, buying mainly chips and displays, and the two firms are locked in a bruising patent battle in some 10 countries from the United States to Europe, Japan and Australia as they jostle for smartphone and tablet supremacy.

Apple, though, is streets ahead in profitability. It generates half its revenue from the iPhone, boasts a 37.4 percent operating margin, versus Samsung's 11 percent, and its $17.3 billion operating profit is almost four times what Samsung earned from selling phones, chips, flat screens and TVs combined.

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