Samsung Electronics May Report 3rd-Qtr Profit Surged Fourfold
By Ian King
10/16 11:01
Seoul, Oct. 17 (Bloomberg) -- Samsung Electronics Co., the world's biggest memory-chip maker, may report profit surged fourfold in the third quarter, aided by higher sales of semiconductors and mobile phones that most rivals don't make.
Samsung may say net income was 1.68 trillion won ($1.3 billion) when it reports third-quarter earnings Friday, up from 420 billion won a year ago, according to the average estimate of five analysts surveyed by Bloomberg News. Samsung had record quarterly profit of 1.92 trillion won in the second quarter.
The South Korean chipmaker is a standout in the $11 billion memory-chip market, remaining profitable while losses mount at rivals such as Boise, Idaho-based Micron Technology Inc. Samsung executives say the company is profitable because it outspends rivals on research and development, dominating the market for high- margin chips that rivals can't produce in large quantities.
``We are spending 8 to 10 percent of sales on capital expenditure and research and development, and we have about 5,000 researchers,'' said Lee Yoon Woo, head of Samsung's semiconductor division. ``Even if our competitors wanted to do that they couldn't because they lack the resources.''
Third-quarter sales probably rose 42 percent to 10.2 trillion won compared with a year ago, the analysts surveyed by Bloomberg News said. Operating profit, or sales minus the cost of goods sold, probably rose to 1.8 trillion won from 18.2 billion won a year ago when its semiconductor division had a loss.
Samsung's shares have risen 9.3 percent since Jan. 1, outperforming rivals in the memory-chip industry such as Micron's 53 percent decline and consumer-electronics maker Sony Corp.'s 12 percent decline.
Investing in Growth
Samsung will spend 4.88 trillion won on new factories and production facilities this year, about ten times what Korean rival Hynix Semiconductor Inc. spent last year and four times Micron Technology's planned spending this year.
Large investments in the latest production technologies give Samsung an edge over its competitors, especially at a time when most technology-related companies are still struggling to recover from the decline in personal computer and semiconductor sales, investors say.
``They have a quick turnaround between research and development and production which keeps them ahead,'' said Jay Kim, an analyst at Good Morning Securities in Seoul who has a ``buy'' recommendation on the company. ``But even with the right technology you need to have money at the right time and Samsung has ample cash flow.''
Kim cited Samsung's ability to mass-produce the latest high- speed memory chips, called double data rate chips, ahead of rivals as an example of how it escaped slumping spot market prices for older synchronous dynamic random-access memory chips.
DDR chips account for about 60 percent of the company's memory-chip production, Samsung's Lee said. DDR chips, which can receive data from a computer's processor at twice the speed of conventional products, sell for as much as double SRAM prices.
Diversified
Korea's most profitable company has about 29 percent of the world market for memory chips and is the largest maker of flat- panel screens used in computers and televisions.
The company is also becoming better known for its mobile phones, surging this year to the No. 3 position among global handset makers, according to market researcher Dataquest Inc.
Samsung is trying to expand gains in the mobile-phone market by focusing on models that offer functions not available in standard phones. It introduced a new model every month last year in a market where staying ahead of trends is crucial to sales.
Samsung had an operating margin of 22 percent in the second quarter from telecommunications, the highest in the industry. The company probably maintained that margin in the third quarter, analysts say.
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