Seoul: Booming demand for smartphones and tablets will help Samsung Electronics Co post better results this year after the world’s No.2 mobile phone maker reported its weakest profit in six quarters.
The South Korean firm is at the forefront of the long queue of rivals determined to halt Apple’s runaway success in mobile devices while also grabbing market share from Nokia and LG Electronics Inc with its Galaxy smartphones.
“Samsung is moving in the right direction into smartphones and tablets. Rising competition is a concern but the pie is also growing,” said Cha Kyung-jin, a fund manager at Golden Bridge Asset Management, which owns Samsung shares.
“Samsung will be able to comfortably position itself in the market. And improving momentum in chips and flat screens will further consolidate its position in the global technology industry.”
The smartphone market is set to grow 44% this year, while the tablet market is likely to more than double to 55 million units, according to industry data. The explosion in these new consumer markets means Samsung will increasingly get a bigger chunk of its profits from smartphones and tablets.
Samsung’s cyclical memory chips business is also set to rebound after prices are likely to bottom out in the first quarter, analysts said.
At the annual Consumer Electronics Show in Las Vegas this month, Samsung had the biggest booth, the thinnest products, and by some accounts, the best buzz, in a sign of its fast growth over the last decade.
Samsung chairman Lee Kun-hee has been preparing for a third generational shift to his only son Jay Lee for control of the firm, whose sales of 155 trillion won ($139 billion) last year were equivalent to more than half of South Korea’s annual budget.
The world’s top maker of flat screens and televisions reported 3.0 trillion won ($2.7 billion) in operating profit for the October-December period, missing a consensus forecast of 3.4 trillion won in profit as polled by Thomson Reuters I/B/E/S.
But this was in line with Samsung’s forecast of operating profit between 2.8 trillion and 3.2 trillion won. The result compares with a 4.9 trillion won profit in the preceding quarter and 3.4 trillion won a year earlier.
On Thursday, Nokia, the world’s biggest cellphone maker, warned of a grim start to 2011 after rivals such as Samsung ate into its market share. Sony Corp is also betting on new products to fend off competition from the likes of Samsung.
Shares in Samsung, whose $145 billion market capitalisation is bigger than the combined value of Sony, Nokia, Toshiba and Panasonic Corp , gained as much as 1.4% to a record on Friday.
Samsung shares have risen by a third in the last three months, beating a 10% gain in the KOSPI .
Strong recovery in smartphones
Profits from Samsung’s telecoms division accounted for nearly half its total profit in the October-December quarter, helping offset the impact of a sharp profit drop in flat screens and chips, which were the major earnings contributors for last year’s record profit.
The rest of the profit came from chip division, helped by sold demand for NAND-type flash memory chips widely used in smartphones and tablets, while home appliances swung into a loss and flat screen unit made a small profit.
The company has sold around 10 million Galaxy S smartphones, powered by Google’s Android platform, since its June debut, and 2 million Galaxy tablets in the past three months.
It still has a long way to catch up with Apple, which sold more than 7 million iPads and 16.2 million iPhones last quarter alone. Apple says it is unable to build enough iPhones to meet demand.
“Samsung’s smartphones are doing well, but due to a variety of its models, manufacturing costs will be high compared to Apple, which has fewer models,” said Shin Jin-Ho, head of equity at Midas Asset Management, which holds Samsung shares.
“The shares will probably extend gains through the first half of this year due to strength in memory chip momentum. But the likely slowdown in the recovery in the second half could impact shares.”