South Korea's Samsung Electronics Co posted a record $5.15 billion quarterly profit and predicted its Galaxy smartphones, which outsell Apple's iPhone and will be upgraded next week, will bulk up earnings this quarter.
Samsung and Apple have carved out a near duopoly in the high-end smartphone market, as rivals struggle to introduce compelling models that can really compete. The duo controlled 90 percent of the market last year and that is not expected to change much this year or next, according to Bernstein analysts.
The third generation of the flagship Galaxy S is due to be unveiled in London next week, less than 100 days before the start of the summer Olympic Games there. The new Galaxy will be powered by Samsung's quad-core microprocessor, which the company hopes to see used in handsets sold by Nokia , HTC and Motorola , as well as Apple, its biggest customer for components.
"We anticipate very strong demand for Galaxy S III," Robert Yi, Samsung's senior vice president and head of investor relations, told analysts. "When there's strong demand in the market, we don't necessarily need to spend a lot of marketing dollars to promote sales."
Samsung's quarterly handset division profits nearly tripled to 4.27 trillion won, accounting for 73 percent of total profit, and operating margins jumped to 18.4 percent from 12 percent in the preceding quarter on strong sales of the Galaxy S and the Note phone/tablet, the surprise consumer hit of recent months.
Brian Park, an analyst at Tong Yang Securities, said Samsung's handset momentum would continue this quarter with the new Galaxy S coming to market ahead of the next iPhone. "The Galaxy S 3's specifications are expected to be sensational and it's already drawing strong interest from the market and consumers."
In a sign that smartphones are where the mobile action is, Foxconn International Holdings Ltd <2038.HK>, which assembles basic handsets for Motorola, Sony Corp <6758.T> and others, warned of a deepening first-half loss on weak orders. Its Taiwanese parent Foxconn Technology Group assembles iPads and iPhones, and Foxconn itself swung to a profit last year as other clients such as Nokia and Huawei Technologies Co Ltd shifted to higher-end smartphones.
Samsung, the world's top technology firm by revenue, has overtaken Nokia, the long-time global mobile phone leader, and is outmuscling Japanese rivals in TVs and memory chips. Its January-March operating profit nearly doubled to 5.85 trillion won, in line with the company's guidance, and was up from 5.3 trillion won in the previous quarter, sending Samsung shares up 2.9 percent to a record 1.38 million won.
Samsung sold 93.5 million handsets in January-March - more than one in every four sold around the world - according to Strategy Analytics, overtaking Nokia, which sold 82.7 million phones and had 22.5 percent market share. Apple had a market share of 9.5 percent.
"Samsung's smartphone success in the first quarter was the flip-side of Nokia's disappointment," Matt Evans, CLSA analyst, said in a recent report.
Tong Yang's Park said Samsung's handset earnings growth may slow later this year, with the likely launch of Apple's iPhone 5, "but the recovery of chips and displays will more than offset potential drops, sustaining earnings momentum."
BUT THE CHIPS ARE DOWN
Samsung competes with Sony and LG Electronics in TVs, Toshiba and SK hynix in chips and LG Display in flat screens.
Profits from semiconductor sales more than halved to 760 billion won, hit by tumbling computer memory chip prices, while the TV and home appliance business boosted profits sharply to 530 billion won from a razor-thin 80 billion won a year ago.
Samsung and its home rival LG Electronics are among the few global TV manufacturers making money and winning market share on the back of sleek design, crisp displays and new technologies, such as 3D and organic light emitting display (OLED) sets. Sony, Panasonic and Sharp expect to have lost a combined $21 billion in the business year just ended.
Samsung will also merge its Samsung Display liquid crystal display (LCD) unit with its OLED production unit Samsung Mobile Display.