Samsung Expects Record Operating Profit

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Seoul – Samsung Electronics Co. 005930.SE -0.15% said Friday it expects a record operating profit for the third quarter despite its legal battles with Apple Inc., AAPL -0.69% but analysts say earnings at its flagship mobile business may have peaked.

Samsung, the world’s largest smartphone maker by shipments, said it expects operating profit of between 7.9 trillion won and 8.3 trillion won ($7.09 billion and $7.45 billion) for the quarter ended Sept. 30, compared with 4.25 trillion won a year earlier. The company set its previous quarterly record in the April-June period with operating profit of 6.72 trillion won.

The South Korean technology company estimates sales of between 51 trillion won and 53 trillion won ($46 billion and $48 billion) for the third quarter, compared with 41.27 trillion won a year earlier, it said in a regulatory filing.

The better-than-expected results pushed Samsung shares up 1.7% early in Friday trading at 1.4 million won—their highest level in five months—before they reversed direction because of profit-taking by foreign investors. At 0530 GMT, Samsung’s shares were down 0.1% at 1.4 million won. The benchmark Kospi was up 0.2%.

Analysts polled by Dow Jones Newswires had forecast on average an operating profit of 7.5 trillion won on sales of 51.9 trillion won.

Samsung’s operating profit has been climbing since the first quarter of 2011, in part because rising sales of smartphones, such as its flagship Galaxy phones, helped it leapfrog Apple as the world’s biggest smartphone maker. The strong sales of the high-end smartphone devices, including Samsung’s latest product, the Galaxy S III, have helped lift the overall sales price of the company’s handset products, analysts say.

But Samsung shares, which peaked on May 2 at 1.41 million won, have been under pressure because of lingering uncertainties surrounding the legal battle with Apple.

The Korean company was dealt a blow in late August when a U.S. federal jury decided that Samsung infringed some of Apple’s design and software patents and fined it more than $1 billion. Samsung has appealed the ruling.

And risks remain that operating profit at the company’s mobile business, which likely accounted for nearly 70% of total operating profit during the July-September period, may slow from the fourth quarter. This is largely because of increased marketing costs caused by intensifying market rivalry, especially after Apple released its new iPhone 5 device in September, and possible provisions following Samsung’s defeat in the U.S. courts.

“The third quarter may be the peak in terms of earnings. The fourth-quarter operating profit is expected to decrease 7.8% on quarter to 7.2 trillion won as slower profit at its telecom unit seems inevitable because of an increase in marketing expenses,” said Lee Sun-tae, an analyst at NH Investment & Securities 016420.SE +2.23% .

Still, analysts say Samsung’s smartphone shipments will continue to grow in the fourth quarter following the release of high-margin smartphones this year.

Samsung, which has a market value of about $183 billion, said it would release its audited results later this month.

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