Tech war hots up as huge profits likely at Samsung

THE global face-off between US hi-tech giant Apple and Samsung Electronics escalated on Friday as the South Korean company revealed probable record operating profits bursting the 5 trillion won barrier (£3 billion) for the first quarter of 2012.

Samsung said the performance – double the profit seen in the same quarter of 2011 – was powered by booming sales of its Galaxy smartphones and the Note, a mini electronic tablet and phone. The Note’s screen is about half the size of Apple’s famed iPad.

The latest bumper profits performance from the South Korean major follows its race to the top of the global smartphone rankings last year, with a market share of nearly 20 per cent – up from just 3 per cent in 2009.

Samsung is now set to go head-to-head with the American group over the next three months with the imminent launches of both an improved Galaxy S and Apple’s next version of the iPhone.

Lee Ka-keun, technology analyst at Hana Daetoo Securities in Seoul, said the dual product launches would trigger a “full-fledged [sales] war” between the international rivals.

In its estimates released Friday, Samsung said it expected a profit of 5.8 trillion Korean won (about £3.2 billion) for the first quarter, better than local market consensus forecasts of 5 trillion won.

It also topped the previous quarter’s profit record of 5.3 trillion won, while revenue is flagged to come in at 45 trillion won. The detailed quarterly results are due on 27 April.

Analysts estimate that Samsung shipped a record 44 million smartphones in the three months just ended, up almost 25 per cent on the previous quarter.

“Higher-than-expected shipments of the Galaxy Note seem to have given an upside to earnings,” said Hana Daetoo’s Lee. “Note sales will increase further in the second quarter, and handset profit will grow despite a rise in marketing costs related to the London Olympics.”

Choi Do-yeon, analyst at LIG Investment & Securities, said that the leap in Samsung’s earnings, while revenue was in line with forecasts, indicated handset profit margins were strong.

He commented: “Handset margins are estimated to have topped 20 per cent and profits from the division also topped 4 trillion won.

“This is really a blowout result and there could be more surprises in the coming quarters as other businesses such as [micro] chips show recovery.”

Samsung’s profit margins still trail Apple, however, which had a return on sales of more than 37 per cent between last October and December.

Analysts say sales of the Galaxy Note since being launched last October have been very impressive and that the top-end model has already become Samsung’s main profit earner.

Sales of the product have topped five million, increasing the pressure on tech companies being seen as slower to embrace electronic diversification, such as HTC, Nokia and BlackBerry owner Research in Motion.

Analysts predict in the near term Samsung’s handset division, including the Galaxy smartphone and the Note, will account for two-thirds of group profits.