Samsung in another Galaxy with stratospheric £4.5bn profit

Electronics giant Samsung has shrugged off the threat from arch-rival Apple to book another quarter of record profits thanks to strong sales of its hi-tech Galaxy smartphones.

However, analysts expect a run of four straight record quarters to end in December as the South Korean giant steps up its marketing to counter Apple’s new iPhone 5 and other products in the crowded £120 billion global smartphone market.

Investment bank Credit Suisse estimates that the firm may have spent as much as $2.7 billion (£1.7bn) on marketing between July and September centred around the Olympic Games and new Galaxy promotions.

This year’s expected bumper annual profit of 28 trillion won (£15.4bn) is also likely to trigger higher performance related pay-outs to many of Samsung’s 206,000 staff early next year.

The group’s line-up of Galaxy smartphones pits it directly against US-based Apple, which recently began shipping its fifth generation iPhone. This has led to a series of high-profile legal disputes between the pair.

Samsung may have to set money aside in the current quarter if it fails in an appeal to overturn an August US court verdict that awarded more than $1bn in damages to Apple for patent infringements by the Korean firm.

Lee Sun-tae, an analyst at NH Investment & Securities, said: “Stronger-than-expected sales of Galaxy S3 and high-end television models appear to have propelled strong earnings growth in the third quarter.

“Fourth-quarter profit will be pressured by one-off expenses: performance pay-outs and some $1bn in legal provisioning relating to the Apple litigation. Excluding those, core earnings will remain solid and a swing factor is how much Samsung spends on marketing.”

KB Investment & Securities’ analyst Byun Han-joon added: “The biggest risk for Samsung is competitive product line-ups from its rivals such as the iPhone 5.”

Samsung posted a profit of 8.1 trillion won for the three months to September, nearly double last year’s figure, as it also benefited from strong sales of top-end TVs.

Profit at the group’s mobile division is likely to have more than doubled to around 5 trillion won as smartphone shipments topped 58 million, including up to 20 million Galaxy S IIIs. The company is due to issue more detailed quarterly data by 26 October.

Some analysts are predicting a mobile handset price war.

Nomura’s Marcello Ahn said: “The high-end smartphone market is split between Samsung and Apple, with their operating profit margins staying high at 30-50 per cent at present.

“If price competition between the two intensifies, we think smartphone margins may decline at a pace faster than our expectation.”