Samsung Enjoys Record Sales, But Worries About Europe’s Debt Crisis

Soaring sales of the Galaxy smartphone drove record quarterly profit of $5.9 billion at Samsung Electronics, though the South Korean tech giant is worrying over how Europe’s debt crisis is influencing demand in its biggest market for televisions and home appliances.

Analysts said the strong result of Samsung was largely thanks to robust smartphone sales. Gains were likely to continue into the third quarter due to strong demand both for Samsung’s new Galaxy S III smartphone and for mobile devices developed by its rivals. Photo: Paul Jacobson/Flickr

South Korean Samsung Electronics announced Friday that it expects a record operating profit of 6.7 trillion won ($5.9 billion) in the second quarter, amid strong sales of its mobile devices.

Sasmsung’s flagship Galaxy smartphones are likely to have stretched their lead over rivals Apple and Nokia – despite a parts shortage that meant it struggled to keep up with stronger-than-expected demand for its latest S III model, writes Reuters.

Last quarter the company’s estimates were within the expected range, so these numbers have a good chance of bearing out.

Samsung’s official Q1 2012 profit totaled $5.1 billion US, meaning this quarter’s profits will represent a significant jump, thanks no doubt in large part to gangbuster sales of its Galaxy series of smartphones.

The official results will be released on July 27th.

However, in a sign that the euro zone crisis is exercising minds in boardrooms around the globe, Samsung executives said that the group was operating to a contingency plan.

“Europe is our biggest consumer electronics market and we may have to initiate cost cuts and product price increases should the euro fall further from the current level,” said one executive who didn’t want to be named as the plan is internal.

“Our smartphones are flying off the shelves, with some outlets reporting 40-60 per cent sales growth, but that’s distorting the overall trading outlook which is more challenging due to the weak global economy and a weak euro,” the executive said.

“For the third quarter, we forecast revenue and operating profit will stand at a record high of 54 trillion won and 8.5 trillion, respectively, thanks to the effect of Galaxy S III on the handset and component divisions,” said Nomura analyst C.W. Chung.

He also said he expected Samsung to ship more than 18 million Galaxy S III smartphones in the third quarter compared with 7 million in April-June.

The euro has fallen around 5 percent against the Korean won since April, and about 8 percent in the past year, to 2-year lows.

In April-June of this year earnings guidance on Friday, Samsung, valued at $170 billion and the world’s leading maker of TVs, smartphones and DRAM memory chips, estimated operating profit jumped 79 per cent to 6.7 trillion won from a year ago – in line with an average forecast in a Reuters survey of 23 analysts.

That would be 14.5 per cent higher than the previous record quarterly profit in January-March. Samsung estimated its second-quarter revenue at 47 trillion won ($41.4 billion), just below a 50 trillion won forecast.

“Revenue is below our forecast, which suggests price pressure was more severe than had been expected in products such as televisions and home appliances,” said Nho Geun-chang, analyst at HMC Investment Securities in Seoul.

“Earnings will be stronger in the current quarter as sales of the high-end Galaxy S III will increase dramatically and drive the telecom division’s earnings to above 5 trillion won,” he said, predicting shipments of the S III would hit 19 million this quarter.

Current quarter profits are expected to rise further ahead as the latest Galaxy model enjoys a boom before the next iPhone launch.

Samsung’s overall third-quarter operating profit is likely to be between 7.3 trillion won and 8.5 trillion won, an increase of as much as 27 percent from the second quarter, according to a Reuters survey of 13 analysts. The mobile business brings in more than 70 per cent of Samsung’s earnings.

Profit from Samsung’s mobile division is likely to have more than doubled to around 4.4 trillion won from a year ago, with sales of around 50 million smartphones – at a rate of 380 every minute.

“Samsung’s profits have yet to peak, and with smartphone sales and recovering chip prices to propel earnings even higher in the second-half, the bar’s been raised so high that even in-line earnings disappoint some optimists,” said Lee Jin-woo, an analyst at Mirae Asset Securities.

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