Samsung Electronics Co. Ltd forecast a sharp jump in quarterly profit, trumping expectations and sending its shares surging as favourable currency rates and robust component sales appeared to offset weakness in smartphones.
The extent of the expected quarterly profit gain, its first in two years, will do much to allay concerns that the South Korean tech giant’s earnings would not be able to shake off the loss of smartphone market share to Apple Inc. in the premium segment and to Chinese rivals at the lower end.
Samsung Electronics estimated July-September operating profit would leap 80 per cent from a year earlier to 7.3 trillion won (€5.6 billion), higher than a 6.7 trillion won profit Thomson Reuters SmartEstimate derived from 30 analysts.
“There were worries that overall earnings will continue falling as mobile profits declined, but now the numbers make the case that Samsung has the capacity to withstand weakness from the mobile business,” said IBK Securities analyst Lee Seung-woo.
Its stock jumped 8.7 per cent, the biggest daily percentage gain in nearly seven years. But it remains down 5.7 per cent so far this year, underperforming a 4.7 per cent advance for South Korea’s benchmark index due to the long-standing worries about its earnings outlook.
The world’s No.1 maker of smartphones and memory chips guided for a 7.5 per cent revenue increase for the third quarter, in line with expectations. It gave no further details about its performance, and will disclose full results in late October.
A 12 per cent depreciation of the average won exchange rate against the dollar in the third quarter was widely cited as a key factor behind the bullish earnings forecast. Dongbu Securities analyst Yoo Eui-hyung estimated the favourable currency rate added about 300 billion won to operating profit.
Analysts also said Samsung’s chip division likely remained its top profit contributor for a fifth straight quarter due to new smartphone launches from a range of manufacturers, while display profits were probably helped by rising sales to clients such as Huawei Technologies Co. Ltd.
And while Samsung has yet to regain lost market share, smartphone earnings likely improved from a year earlier on the back of new lower-end models and the August launch of the Galaxy Note 5 – a premium large screen phone.