Samsung Electronics' <005930.KS> second-half performance might be hit by weak European markets, and the launch of its new smartphones is key as the world's No. 1 memory chipmaker is set to report a record quarterly profit.
The mainstay memory chip unit of Samsung is benefitting from a robust recovery in the global consumer electronics market, but Apple Inc's fastest ever global rollout of its latest iPhone is posing as a strong headwind to Samsung's nascent smartphone business.
Last month, BlackBerry maker Research in Motion reported disappointing quarterly shipments, rekindling worries it is losing market share to Apple and other rivals. Nokia also issued a second profit warning as it struggles to compete against iPhone.
Samsung, the first major global technology firm to unveil second quarter estimates, could be hit by its exposure to Europe.
The biggest risk factor for Samsung at the moment is whether European demand will normalize back in the third quarter, said Benjamin Ban, an analyst at Daishin Securities.
A further slowdown in European demand for electronics goods such as TVs and handsets will eventually depress buoyant component market, which has been the main source of record profit this year.
Europe is estimated to make up 30-40 percent of Samsung's TV and handset sales.
South Korea's exports to Europe rose around 16 percent so far this year, far underperforming a 30 and 50 percent growth to the United States and China and underscoring fiscal crisis in Europe has weakened demand from the region, customs data showed.
Chips and LCD flat screens are doing well and will lead Samsung to continue to report record-breaking results until July-September, said Song Myung-sub, an analyst at Hi Investment & Securities.
But things have turned somewhat downbeat from the very upbeat picture we had earlier this year, as we now expect prices of chips and LCDs would start falling from the fourth quarter and demand could weaken, initially starting from unstable Europe.
Samsung, which unveils April-June earnings guidance on Wednesday, is likely to estimate quarterly operating profit at a record 4.8 trillion won ($4.0 billion) on 38.4 trillion won sales, according to Thomson Reuters I/B/E/S.
It would beat the previous record of 4.4 trillion won seen in the first quarter and almost double from the previous year's 2.67 trillion won, mainly helped by record chip sales, which would make up around half of Samsung's total operating profit.
Sales of LCD flat screen panels were also seen strong thanks to robust orders from TV producers betting healthy demand growth during this summer's World Cup soccer event.
But handset business, one of Samsung's weakest performing units, suffered another setback due to delays in smartphone launches and weak feature phone sales, analysts said.
Analysts expect weak demand from Europe and almost a 10 percent tumble in the euro might lead Samsung to report telecoms margin and profit nearly halved in the second quarter from the preceding quarter.
Shares in Samsung, Asia's most valuable technology firm worth $92 billion fell 11 percent over the past three months from a record high of 875,000 won, lagging the market's 3 percent drop.
After peaking at a new record of 5.0 trillion won in Q3, earnings are set to shrink 20 percent to 4.0 trillion won in the fourth quarter, as gains in its mainstay memory chip prices falter amid rising supply growth.
CLSA expects Samsung's average selling prices of DRAM, mostly used in computers and servers, are likely to fall 10 percent in Q3 and 20 percent in Q4, although a strong pick-up in demand for NAND chips, used in smartphones, will make up for the slowdown.
To boost its smartphone sales, Samsung is launching Galaxy S, its answer to Apple's iPhone, globally with 100 carriers including the top five U.S. carriers.
While Apple has so far limited iPhone distributions to a single partner in each major market, Samsung is targeting multiple carriers to sell Google's Android-based phone, as the smartphone laggard aims to treble shipments this year.
(Editing by Anshuman Daga)