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For Samsung, Strong Phone Sales, Weak Everything Else

Samsung has an interesting challenge," said analyst Gerry Purdy. "They make the components that many people put into their mobile devices as well as Samsung devices that compete with customers of their semiconductor division. They sell flash memory to go into products that compete with Samsung's Android smartphones."

The good news for Samsung Electronics is that it has established itself as a major player in the skyrocketing smartphone market. The bad news: It's struggling in other areas, with a 23 percent drop in earnings year-to-year.
The flagship subsidiary of Seoul, South Korea-based Samsung Group posted record earnings of $2.3 billion for the third quarter of this year, or June to September, for its telecom business, which includes mobile  devices. But its quarterly profit in other areas fell 13 percent from the same quarter last year.

Overall, growth in revenue was up 3 percent from the same period last year, with $3.8 billion in operating profit and $36.9 billion in sales.

Demand For NAND

The company said the strong telecom sales were driven by strong sales of its Galaxy line of smartphones, which are available on all four major U.S. carriers and around the world. In a statement, Samsung said semiconductor sales were up from the second quarter, driven by increasing demand for NAND flash chips, and growth in its logical solutions for mobile business, which creates mobile application processors. Samsung said NAND demand for both smartphones and tablet  PCs is strong and prices rose in the quarter due to limited supplies.

"Despite the difficult business environment due to the economic slowdown in developed markets, Samsung achieved a solid performance and recovered its double-digit operating profit margin in the quarter, driven by strong sales of our smartphones," said Robert Yi, vice president and head of investor relations.

Looking to the holiday season in the fourth quarter, Samsung expects continued strong sales of phones as well as increased TV sales, but cautions that the weak global economy could mean slower growth than previous years. A verdict in the company's legal battle with Apple over patents could also take a toll on sales.

Win-Win

"Analyst Gerry Purdy of MobileTrax said the company benefited from sales of smartphones across the manufacturer spectrum, even those of competitors.

Samsung has an interesting challenge," Purdy said. "They make the components that many people put into their mobile devices as well as Samsung devices that compete with customers of their semiconductor division. They sell flash memory to go into products that compete with Samsung's Android  smartphones.

"People who work in the semiconductor division that have these customer  relationships think of themselves as individual companies, but the financials all get rolled up into one company."

Purdy said it was unlikely the company would phase out any of its less successful divisions, though it will likely make choices about how best to allocate resources.

"Is it better for them to sell more of their devices or sell more of the components everyone uses?" he said. "What you try to do is see where to place your resources and marketing development dollars that will give you the biggest return. They may choose to focus more on phones and tablets."

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