A Road Block For Samsung?
While Samsung Electronics (SSNLF.PK) will likely announce on Friday that its July-September operating profit will reach $6.8 billion, a record for a South Korean company, the streak of four straight record quarters will come to an end in the current quarter.
As the company spends more on marketing to counter Apple’s (NASDAQ:AAPL) recently-released iPhone 5 and to stand apart from competitors in the $200 billion global smartphone market, profits will shrink. Furthermore, if Samsung fails in its appeal of an August 24 U.S. court ruling for patent infringements, the company will have to pay Apple $1 billion. Shares in the company have risen 6.2 percent since the court decision, however, while Apple has gained only 1.2 percent.
Samsung, valued at $197 billion, is the world’s leading manufacturer of televisions, smartphones, and memory chips. But due to a slump in computer sales and the weak global economy, analysts expect its earnings to decline until the second quarter of next year.
“The mobile business has been the main driver for Samsung, but its momentum will slow as differentiating to really wow consumers becomes even more challenging, and high-end models come under more price pressure as markets get crowded,” said IBK Investment & Securities analyst Lee-Seung-woo to Reuters.
The weak global economy has led to lower prices of Samsung’s mainstay, dynamic random access memory chips, used in computers and mobiles. Tablets and smartphones, where real growth occurs, use a different type of memory. Contract prices have dropped 14 percent in the last quarter, and now trade below what it costs manufacturers to make them. Due to the drop in demand, Samsung is expected to reduce its investment in chips.
Samsung’s operating profit for the period from July to September climbed 77 percent from a year ago, to 6.8 billion, and profits will include the sale of 18 – 20 million Galaxy S IIIs. Full third quarter results are expected at the end of the month.
Despite Samsung’s patent disputes with Apple, the company’s brand value has increased from 17th in the world to 9th this year, according to the brand consultancy Interbrand.