Samsung Forecasts Record Profits

But growth is slowing with the saturation of high-end smartphone market

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Samsung Electronics is set to exceed analysts’ predictions for its third quarter earnings, with operating profits estimated at about $9.4 billion. But growth is slowing despite the record-earnings, according to guidance issued by the company on Friday. The group’s profit estimates rose by about 24% since the same time last year, which is the smallest year-on-year growth for the company since the third quarter of 2011.

Analysts say the record profits are thanks to a rebound in Samsung’s semiconductor business, after a fire in a Chinese plant owned by the world’s second largest memory chip maker, SK Hynix, caused a tightening of the market. “As of now, there is no real competitor for Samsung in the [memory] chip business,” an analyst at IBK Investment & Securities told Reuters. “This dearth of players is expected to allow Samsung to post considerable operating profits throughout this year and next year, even if demand flags.”

But slowing sales of the Galaxy S4 and increasing competition in the near-saturated high-end mobile market are taking their toll. Doubts over the “sustainability” of smartphone-driven profits “hint at an overall valuation discount for Samsung”, according to an analyst at HMC Investment & Securities.

With a 33.1% share of the global mobile market, Samsung has dominated its competitors thanks to its policy of catering to both the low- and high-end segments of the sector, analysts say. Its biggest rival, Apple, follows with a 13.6% share, according to Strategy Analytics. But both companies face rising competition from Asia, where start-ups are producing cheap gadgets with similar capabilities to top-end devices.

Samsung will release its full earnings report later this month, and is expected to post an operating profit of $35.85 billion this year, according to a Thomson Reuters survey.