Samsung: Profit Will Fall in Fourth Quarter

Posted on Sunday, Oct 28 2012 on 12:00 AM
SEOUL—Executives at Samsung Electronics Co. 005930.SE -2.65% said the company's fourth-quarter profit will likely fall from the third quarter's record level amid greater competition in smartphones during the year's peak sales season, but they gave no indication how far. "We expect increases in marketing expenses and even more intense competition in [the fourth quarter]," Kim Han-joong, an executive from Samsung's telecom division, told analysts Friday. The unit was responsible for 69% of Samsung's operating profit in the latest period, making changes in its performance the most influential on the company's overall results. While Samsung had the market for new models of high-end smartphones to itself for most of the July-to-October period, competitors like Apple Inc. AAPL -0.91% and LG Electronics Co. 066570.SE -1.22% have rolled out new phones that will force it to spend more money on marketing and carrier incentives to maintain its industry-leading market share. In a conference call, when analysts asked for estimates of how much Samsung's marketing expenses would rise, executives declined to reveal a specific figure for smartphones but said the overall jump would be similar to last year's. For the fourth quarter of 2011, Samsung reported a companywide 1.4% jump in sales costs. The telecom unit's operating profit margin fell to 15% in that period from the third quarter's 17%. But Samsung executives at the time attributed the drop to poor sales of network equipment and said marketing costs for smartphones were comparably even. After the company released its latest results Friday, market researchers estimated Samsung shipped about 55 million to 57 million smartphones, well above the 26.9 million Apple reported it sold in the quarter. They put Samsung's global smartphone market share in the 31% to 35% range. Samsung itself doesn't release product data. During a conference call, Mr. Kim repeated a shipment figure for the company's flagship Galaxy S III smartphone—10 million units—that another Samsung executive revealed several weeks ago. The company's telecom unit produced an operating profit margin of 19%, the highest since it changed to international accounting standards two years ago. The unit's operating margin was 17% in the second quarter. Overall, Samsung said it earned 6.56 trillion won, or $6 billion, compared with 3.44 trillion won in third quarter of last year. Revenue was 52.2 trillion won, up 26% from 41.3 trillion won a year ago. The results marked the third record quarterly profit in a row. With it, Samsung in the first nine months of the year earned 16.8 trillion won, beating the 16.2 trillion won profit it earned in the 12 months of 2010, which had been its highest annual profit. Samsung's chip division reported 13.2% operating profit margin in chips, down from 16.8% a year ago but up from 12.9% in the second quarter. Growing profit in logic chips offset slumping revenue and profit in memory chips. Samsung's display-components business continued to recover from operating losses last year, with an operating profit margin of 13%, the year's best. Executives said most of that came from production of advanced organic light emitting diode, or OLED, screens. The company's other consumer-electronics products—TVs, computers, printers, cameras and appliances—reported an operating profit margin of 3.7%, up from 1.6% a year ago but below the 6.3% in the second quarter.