Samsung says third-quarter to top consensus as phones boom

Samsung says third-quarter to top consensus as phones boom

Stock Market Predictions

SEOUL (Global Markets) - Samsung Electronics said its quarterly profit should top the most bullish market forecasts, with smartphones becoming its main profit engine despite intense competition from bigger rival Apple.

Indeed, analysts expect Samsung to report record profit from handset sales in the third quarter and overtake Apple as the world's biggest smartphone vendor in unit terms.

The South Korean firm estimated its quarterly operating profit at 4.2 trillion won ($3.5 billion) versus a consensus forecast of 3.4 trillion won by analysts surveyed by Thomson Global Markets I/B/E/S. That would be down 14 percent from a year ago but up 12 percent from the preceding quarter.

The estimate released on Friday was higher than even the most bullish street view of 3.95 trillion won. Detailed earnings for July to September will be released later this month, Samsung said.

"Samsung's estimates are far better than expected," said Park Jong-min, a fund manager at ING Investment Management. "Its telecommunications business is seen very positive as shipments of smartphones and other high-end handsets expanded."

Investors are looking for signs the telecoms business can sustain strong growth for the year-end holiday season as its flagship Galaxy line of smartphones and tablets squares off against Apple's new iPhone, which goes on sale next week.

Stellar growth and strong profit margins from its telecom business mark a big transformation for a company, which has relied for years on its mainstay computer memory chips to boost profit. It had a negligible share of the smartphone market until early last year.

Samsung shares held steady on Friday, while the broader market rose 2.6 percent, an underperformance that analysts blamed on the prospects for a tougher fourth quarter owing to weak prices for memory chips and flat screens. However, Samsung shares had risen sharply in September as the wider market fell.

Earnings at the world's biggest technology firm with sales of $130 billion last year, are set to slide to 3.4 trillion won in the fourth quarter, consensus estimates show.

Profit from Samsung's telecoms division is widely expected to top earnings from the semiconductor business at the world's biggest memory chip maker.

Analysts say Samsung is one of the best placed companies to deliver something fresh and exciting to rival Apple, which has released a string of big-hit products in the past two decades.

It already makes the closest competing tablet by sales to Apple's iPad.

Samsung sold 19 million smartphones in the second quarter and shipments are expected by analysts to have risen to more than 28 million units in the third quarter compared to the 60 million units Samsung is targeting for 2011.

Samsung sold about 1 million fewer smartphones than Apple in the second quarter.

It plans to release its first smartphone based on the latest version of Microsoft's mobile operating system this month, while a 5.3-inch screen Galaxy Note, a hybrid of a smartphone and a tablet, is set to go on sale later this year.

Samsung leads a pack of companies selling phones on Google's Android operating system.

"The Galaxy S II probably played a key role in boosting the company's earnings and it will continue to do so pretty much unchallenged, until Apple unveils a better new version of iPhone," said Kyung Woo-hyun, a fund manager at Daishin Asset Management.

Samsung, which worked out how to make black and white TVs in the 1970s by tearing apart Japanese models, has become a top global brand over the past decade.

It boasts a market value of $118 billion, much bigger than the combined value of Sony Corp, Nokia, Research In Motion, Toshiba and Panasonic Corp.

Samsung's shares have fallen 5 percent over the past three months versus a 12 percent drop in Apple's shares.

APPLE CHALLENGER

Expectations for further momentum in Samsung's smartphone business grew after Apple's newest iPhone, unveiled this week, left investors and Apple's fans wishing for more than a souped-up version of its previous device introduced more than a year ago.

"I previously thought Apple's new iPhone would slow Samsung's handset earnings momentum, but there was no iPhone 5, and the iPhone 4S will not be a burden on Samsung in the fourth quarter," said Ahn Seong-ho, an analyst at Hanwha Securities.

But an intensifying legal battle with Apple over patents and designs threatens to dent growth of Samsung's handset and component business. Apple is also Samsung's biggest customer, buying mainly chips and displays.

"I am very surprised at the (profit) numbers. I am guessing either a particular lineup of products with higher margins sold well, or cost cutting measures were aggressively implemented," said James Song, an analyst at HI Investment & Securities.

Some analysts expected one-off gains such as reduced provisioning costs relating to royalty payments to Microsoft over smartphones and tablets using Android, or a cheaper won currency to boost profitability.

The South Korean won tumbled 9.4 percent against the dollar in the third quarter, making Korean products cheaper to overseas consumers.

Chips and flat screens are underperforming as consumers delay buying TVs and computers in a slowing global economy. This has pushed down prices of key components.

Prices of dynamic random access memory (DRAM) chips used in PCs tumbled about 50 percent in the third quarter and many analysts, including those at Citi and UBS, believe Samsung was the sole profitable DRAM maker in the third quarter.

Major global technology companies from Hynix Semiconductor to LG Display and Sony Corp are expected to report operating losses from their core businesses in July-September.

($1=1191 won)

(Additional reporting by Hyunjoo Jin and Jungyoun Park; Editing by Jonathan Hopfner and Anshuman Daga)

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Nintendo product flop crushes shares, outlook crumbles

Nintendo product flop crushes shares, outlook crumbles

Stock Market Predictions

TOKYO (Global Markets) - Nintendo's shocking profit battered its shares as much as 20 percent, underscoring deep challenges for an iconic brand struggling to win back users flocking to other gadgets.

The plunge wiped off $5 billion from Nintendo's market value after the company said profits would fall to their lowest in 27 years as it braced for losses from its latest 3D gadget.

Brokers cut the company's forecasts, a day after it swung to a quarterly loss and slashed prices of its 3D-capable handheld games device by about a third.

With sales of its DS and Wii fading, Nintendo was relying on the new 3D model to revive profits and fend off renewed competition from motion-gaming peripherals of Sony Corp and Microsoft. Many casual gamers are also flocking to devices such as Apple's blockbuster iPhone and iPad.

"They are standing on the edge," said Yuuki Sakurai, CEO and president of Fukoku Capital Management in Tokyo. "When I ride on the trains I see people using their smartphones to play games and people don't want to overlap their spending on other devices," he said.

The Kyoto-based company must consider providing games to these new platforms rather than focusing on new hardware, Sakurai said.

Nintendo President Satoru Iwata took a 50 percent pay cut, and other executives took 20-30 percent cuts to take responsibility for the poor performance.

The company also reduced sales forecasts for its Wii home games console and the previous generation DS handheld device.

"We needed to do something extremely daring to change the situation, so we decided on the price-cut," said Iwata, a former game designer, who launched the Wii and expanded the gaming population, toppling Sony from the industry's top spot.

Nintendo's shares fell as much 20 percent on Friday to 11,100 yen, its lowest intraday level since May 2004. They ended down 12.2 percent on the day, for a drop this year of nearly 50 percent.

Speaking to reporters in Osaka on Thursday, Iwata acknowledged sales of the much-anticipated 3DS had lost momentum shortly after the launch earlier this year.

"However, by cutting the price before you get economies of scale, of course you make losses on the hardware," he said.

Nintendo sold only 710,000 units of the 3DS in April-June, compared with 3.6 million in the month following its launch, and a tiny fraction of the 16 million unit target for the year to March 2012.

The Wii sold only 1.56 million units, half the figure in the same period last year. The device took the industry by storm five years ago by replacing button clicking with motion control, attracting a new wave of gamers that expanded the market.

Nintendo cut its annual operating profit forecast after market hours on Thursday to 35 billion yen from an initial forecast of 175 billion yen. The new estimate is far short of the previous consensus of 154.9 billion yen based on 24 analysts' forecasts ahead of the results.

UNCERTAIN OUTLOOK

JP Morgan cut its rating on the company behind the Super Mario franchise to "underweight" from "overweight", saying the current situation was worse than feared and the outlook uncertain.

"The timing of the 3DS hardware price cut is surprising, given the major in-house software releases... We believe the 3DS will be a heavy weight on earnings over the medium term. The lack of a share buyback announcement is also disappointing," analyst Hiroshi Kamide said in a report.

Nintendo has been criticized for being too centered on hardware as the market increasingly shifts to a battleground over software, with games played over Internet networks linking millions of players.

"The software wasn't terribly compelling," said Ricardo Torres, editor-in-chief of gamespot.com. "There wasn't enough to do with it," he said.

Japanese electronic companies have been hit by weak consumer spending in North America and Europe.

U.S. consumer spending, which accounts for about 70 percent of the country's economic activity, is expected to have decelerated sharply in the second quarter of 2011 to the weakest level since the end of the 2007-09 recession two years ago.

Shares of Sony Corp also fell on Friday, a day after the Japanese consumer electronics group slashed its outlook for TV sales and cut its full-year net profit forecast to 60 billion yen from 80 billion yen. ($1=77.8 Yen)

(Additional reporting by James Topham, Ayai Tomisawa, Mariko Katsumura and Tim Kelly; Editing by Anshuman Daga)

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