Samsung Electronics Co. posted a record $4.7-billion (U.S.) quarterly operating profit, driven by booming smartphone sales, and will spend $22-billion this year to boost its production of chips and flat screens to further pull 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.
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 per cent from a year ago and 25 per cent higher than in the third quarter.
“This year, the smartphone market will expand to more mid- and low-end models that are affordable to the wider public,” said Baik Jae-yer, fund manager at Korea Investment Management.
“Rather than focusing on market share, I would point out the strong contribution of Samsung’s handset business to earnings growth and margins. The battle of the two big smartphone powers, Apple versus Samsung, will go on.”
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 said it will increase its investment this year by 9 per cent to 25-trillion won, with 15-trillion won of that going to the chips division, 6.6-trillion won on flat screens and the rest mainly to boost capacity at overseas production sites and to build research and development centres.
Apple, overtaken by Samsung as the world’s biggest maker of smartphones in the third quarter, looks certain to have regained the 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 per cent, suggesting sales of around 36 million, in line with analysts’ estimates of 35-37 million.
Samsung only entered the smartphone market in earnest in 2010, some three years after Apple first introduced the iPhone with the touchscreen template.
Samsung may not have come up with the concept, but it has adopted Apple’s breakthrough idea perhaps better than any other handset maker – 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 top spot in the booming smartphone and tablet market.
Apple, though, is streets ahead in profitability. Apple, which generates half its revenue from the iPhone, boasts a 37.4 per cent operating margin versus Samsung’s 11 per cent, and its $17.3-billion operating profit is almost four times what Samsung earned from selling phones, chips, flat screens and TVs combined.
“Apple had good sales, but it’s very unlikely this will be a trend that will overwhelm Samsung later,” said Kim Young-chan, analyst at Shinhan Investment & Securities.
“There were many end-of-year promotions and, most importantly, the impact from [Apple founder Steve Jobs’s]death on sales growth can’t be ruled out.
“It’s unlikely Samsung and Apple will fight over each other’s market share, but they will eat up the market share of smaller companies like HTC and RIM.”
Shares in Samsung, also the world’s top maker of memory chips and TVs, have risen by close to a fifth in the past three months and hit a life high of 1.125-million won earlier this week, outperforming a 3-per-cent gain on the KOSPI.
The stock was up 0.3 per cent in early Seoul trading at 1.116-million won, while the broader market was a touch lower.