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Oct 29, 2015 12:48 AM

Samsung profit gains thanks to phone components

The Associated Press

SEOUL, South Korea (AP) Samsung Electronics Co. reported its first earnings gain in more than a year on Thursday as a record profit from computer chips masked a decline in its smartphone business.

But the company predicted that its fourth-quarter profit would decline as the boost that its chip business is getting from a strong dollar is expected to fade.

Its third-quarter net income was 5.3 trillion won ($4.6 billion), up 28 percent over a year earlier. That was lower than the 5.6 trillion won forecast in survey of analysts by financial data provider FactSet.

Samsung posted a record profit for its semiconductor division helped by its supplies to Apple and favorable currency exchange rates. But the company's smartphone business posted its lowest profit in three quarters, after it cut prices for some of its high-end Galaxy smartphones.

Sales of 51.7 trillion won were up 9 percent from a year earlier. Operating profit jumped 82 percent to 7.4 trillion won.

Samsung's stock price surged as much as 4 percent after it announced a plan to increase shareholder returns, including buying back and cancelling $10 billion worth of stock over the next year. It also promised to return as much as 50 percent of its annual free cash flow to shareholders for the next three years.

In the July-September quarter, Samsung posted 3.66 trillion won ($3.2 billion) in operating profit from its semiconductor division alone, accounting for about half of the company's overall profit. Samsung said its revenue from the foundry division, which supplies application processors powering Apple's iPhones, increased from the previous quarter.

Lucrative display panels known as OLED helped Samsung's display division earn 0.9 trillion won in operating profit. Samsung said it secured supply deals with a wider number of smartphone makers around the world for its OLED screens.

Samsung's components business also reaped benefits from a strong dollar and a weak local currency. Samsung said the favorable foreign exchange rates generated 800 billion won of income mostly from its components business.

But its operating profit from its mobile business slid to 2.4 trillion won ($2 billion) from 2.8 trillion won in the second quarter, even though Samsung released premium smartphone models more quickly than previous years and expanded its handset models using curved screens. The company also rolled out Samsung Pay, a mobile payment service, for its Galaxy phone users in South Korea and the U.S.

Samsung said mobile profit declined despite higher phone shipments and a slight increase in revenues because growth came from cheap handsets. Price cuts for its Galaxy S6 and Galaxy S6 Edge smartphones reduced its profit margin.

The company is expected to sell slightly more smartphones during the winter holiday seasons and see an improvement in the processor chip department that supplies to Apple. But that will not help profit.

"We expect earnings to decline compared to previous quarter, as we do not expect the positive foreign exchange impact to continue," Robert Yi, head of Samsung's investor relations team, said on a conference call.

Samsung sold more smartphones than any other phone maker during the third quarter, according to market research firms. IDC said Samsung shipped 84.5 million smartphones during the July-September period, compared with Apple's 48 million iPhone sales.

But Samsung's smartphones are significantly cheaper than iPhones. The company said its phones were sold at between $180 and $190 on average, less than a third of the price that Apple commands with the iPhone.

In order to sway customers and increase the mojo of its phones, Samsung plans a global expansion of its Samsung Pay mobile payment system, an exclusive service for the latest Galaxy phone users.


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