Samsung Electronics Co. estimated its third-quarter operating profit rebounded sharply from a year earlier on robust sales of chips and displays used in mobile phones and other gadgets.
The positive guidance from the world's biggest smartphone maker suggests that Samsung's earnings may have bottomed out, ending a nearly two-year decline from tepid sales and deteriorating profit from mobile phones.
Following years of exuberant growth, profits at Samsung, the world's largest smartphone maker by shipments, began to dive last year as the company's profits were squeezed by stiff competition from Chinese handset makers that launched high-quality phones at much cheaper prices while consumers flocked to high-end smartphones from Apple Inc. rather than Samsung's Galaxy phones.
While the mobile phone business isn't likely to see a significant rebound as growth in global demand for smartphones cool amid saturated markets, Samsung's earnings are being powered by strong growth in its chip business due to tight supply and firm pricing, analysts say. Samsung's chip unit likely accounted for about half of the company's profit in the third quarter, analysts said, while strong sales of displays to Chinese smartphone makers also contributed to its bottom line.
The South Korean technology company said Wednesday its operating profit for the three months ended Sept. 30 likely rose 79.8% to about 7.3 trillion Korean won (US$6.3 billion), its first year-over-year growth since the third quarter of 2013 when the company posted a 26% increase. Revenue likely rose about 7.5% to 51 trillion won.
Analysts were expecting Samsung to post an operating profit of 6.5 trillion won on revenue of 50.5 trillion won, based on a poll of nine analysts.
Samsung's mobile division likely performed better in the third quarter than a year earlier as it has been streamlining its smartphone lineup to cut costs, while introducing its flagship models faster to combat stiff competition. Samsung launched a pair of new smartphone models--the Galaxy Note 5 and the Galaxy S6 Edge +--in August, advancing the timing of its launch by several weeks to beat Apple Inc. in the market.
The new Samsung phones are sold with a rebate of up to $120 through select carriers in the U.S., with an extra benefit for customers switching from iPhones--an aggressive attempt at maintaining its share in the U.S. market while seeking to expand the adoption of its recently launched mobile payment service, Samsung Pay. But the heavy promotion is likely to come at the expense of the company's mobile profit margins, analysts say, which likely fell to 8% to 9% from 11% in the second quarter.
Samsung's mobile unit likely posted an operating profit of about 2 trillion won, analysts estimate, up from 1.75 trillion won a year earlier. This compares with an estimated operating profit of about 3.5 trillion won expected from the company's chip unit.
The company doesn't disclose divisional figures and final results are due later this month.
"The mobile unit isn't out of the woods yet," said C.W. Chung, an analyst with Nomura Securities in Seoul. "Unless that changes, it won't be easy for Samsung to get back on an overall growth track."