Samsung Q3 profit seen down; handsets, chips eyed

SEOUL Thu Oct 27, 2011 12:05pm EDT

Models pose with the Galaxy Nexus, the first smartphone to feature Android 4.0 Ice Cream Sandwich and a HD Super AMOLED display, during a news conference in Hong Kong October 19, 2011.   REUTERS/Bobby Yip

Models pose with the Galaxy Nexus, the first smartphone to feature Android 4.0 Ice Cream Sandwich and a HD Super AMOLED display, during a news conference in Hong Kong October 19, 2011.

Credit: Reuters/Bobby Yip

SEOUL (Reuters) - Samsung Electronics Co (005930.KS), the world's top technology firm by revenue, is set to report a 14 percent fall in quarterly profit on Friday, and the focus will be on the level of upside surprise from its roaring handset business.

The South Korean firm, which had little traction in the smartphone market until early last year, has staged a strong comeback in the lucrative smartphone market and the business is emerging as a major profit pillar, mitigating a sharp profit fall from its mainstay memory chips.

The company estimated earlier this month that its July-September operating profit would top even the most bullish street view and come at around 4.2 trillion won, which analysts expect will be mainly driven by strong handset sales.

The profit estimate beats a 3.4 trillion won consensus forecast by analysts and would be down 14 percent from a year ago but up 12 percent from the preceding quarter.

Market will now focus on how resiliently its handset business will perform in the crucial year-end holiday quarter as its flagship Galaxy lineup of products will square off against a series of new models released by Apple Inc (AAPL.O), Nokia (NOK1V.HE), and HTC Corp (2498.TW).

Samsung, the biggest handset maker in Google's (GOOG.O) Android camp, is almost certain to surpass Apple as the world's biggest smartphone maker in unit terms in the third quarter, buoyed by strong sales of Galaxy products.

But it faces a tough fourth-quarter as the new iPhone, introduced earlier this month, sets new first weekend record sales and Nokia fights back with its first phones based on Microsoft's (MSFT.O) Windows software.

Samsung's bread-and-butter chip business is forecast to post a profit slump from a year earlier, but is seen holding up well thanks to relatively high exposure to more lucrative mobile chips.

Rivals from Hynix Semiconductor Inc (000660.KS), Elpida Memory Inc 6665.T and Micron Technology MU.N have swung to a loss due to a collapse in prices of computer memory chips.

Samsung plans to expand its capital expenditure in semiconductors by 50 percent to a record 15 trillion won ($13 billion) next year, a media report said on Monday, citing Samsung and industry officials.

Samsung's shares have dropped 2.1 percent this year, outperforming a 6.7 percent fall in the KOSPI .KS11.

Its flat-screen business, which vies the world's top position with local rival LG Display (034220.KS), is set to remain the biggest earnings drain, losing money for a third consecutive quarter due to weak demand of TVs and PCs.

Samsung's close rival LG Display reported its biggest quarterly loss last week, while Taiwan's AU Optronics Corp (2409.TW) on Tuesday posted a worse-than-expected loss in the third quarter, and further slashed its capital spending plan this year.

Samsung trails Nokia (NOK1V.HE) in mobile phones, competes with Sony Corp (6758.T) and LG Electronics Inc (066570.KS) in TVs, and Toshiba Corp (6502.T), Hynix in chips and LG Display (034220.KS) in displays.

($1 = 1132 Korean Won)

(Editing by Miyoung Kim)