Samsung surges past Apple in smartphones, upbeat on Q4

Samsung Electronics Co overtook Apple Inc as the world's top smartphone maker in the July-September period with a 44 percent jump in shipments, and forecast strong sales in the current quarter in a clear warning to its rivals.

Samsung (005930.KS) only entered the smartphone market in earnest last year, but its sales have skyrocketed thanks to a sleek production system that rapidly brings new products to market. Apple (AAPL.O) introduced its first iPhone in 2007.

"In the handset division, Samsung has no real rival models to challenge its products except for the iPhone 4S. Apple and Samsung will continue to dominate the market in the fourth quarter," said Kim Hyun-joong, a fund manager at Midas Asset Management, which owns Samsung shares.

Profits from the South Korean firm's telecoms division, announced on Friday, more than doubled from a year ago to a record 2.5 trillion won ($2.2 billion) and accounted for 60 percent of Samsung's total profit, offsetting a plunge in earnings from its bread-and-butter memory chips.

Shipments of smartphones jumped 44 percent from the preceding quarter to 27.8 million units, up nearly four times from a year ago, according to research firm Strategy Analytics.

Apple's iPhone sales shrank by 16 percent to 17.1 million units in the third quarter. Samsung had 23.8 percent of the global smartphone market in the third quarter, 9 points higher than Apple. Samsung's flagship Galaxy line of products is powered by Google's (GOOG.O) Android software.

Apple sold fewer phones in the third quarter, missing street expectations for the first time in year, as customers held off buying iPhones until the October launch of the latest version.

Samsung shares were up 1.6 percent by 0500 GMT (1 a.m. EDT), versus a 0.6 percent gain in the wider market .KS11.

The world's biggest technology firm by revenue reported a 4.25 trillion won operating profit for the July-September quarter, broadly in line with its earlier estimate of 4.2 trillion won.

That was down from 4.9 trillion won a year ago but up from 3.8 trillion won in the preceding quarter.

Samsung said its fourth-quarter earnings could be better than the third, boosted by one-off gains from its $1.4 billion sale of its hard disk drive business to Seagate Technology (STX.O).

"I am cautiously optimistic on the fourth quarter outlook at this point," Robert Yi, head of Samsung's investor relations, told analysts.

"Looking ahead into the fourth quarter, when industry demand is traditionally at its peak, Samsung expects sales of mobile devices to remain strong and flat-panel TV shipments to increase," the company added in an earnings statement.

Apple, whose iPhone sales account for nearly half the firm's total sales, reported a 40 percent gross margin, or the percentage of sales left after subtracting the cost of goods sold. Samsung's phone division reported a 16.9 percent operating margin, which further takes account of marketing costs.

Nevertheless, Samsung faces challenges as the new iPhone introduced earlier this month is notching up strong sales.

Nokia is also fighting back with its first phones based on Microsoft's (MSFT.O) Windows software. And Sony Corp (6758.T) announced on Thursday it would take full ownership of its mobile venture, Sony Ericsson, in a bid to exploit its music and video library.

Samsung on Thursday announced the launch of its Galaxy Note mobile device, adding to the flagship Galaxy lineup of products. The device, powered by Android, will square off against a series of new models released by Apple, Nokia and HTC Corp (2498.TW).

The iPhone, introduced in 2007 with the touchscreen template now adopted by its rivals, is still the gold standard in the smartphone market.

Samsung may not have come up with the concept, but it has adopted Apple's breakthrough smartphone idea perhaps better than any other handset maker. It tries to offer the Apple experience at a better price with better functionality.

"Samsung's rise has been driven by a blend of elegant hardware designs, popular Android services, memorable sub-brands and extensive global distribution," said Alex Spektor at Strategy Analytics.

"Samsung has demonstrated that it is possible, at least in the short term, to differentiate and grow by using the Android ecosystem."

Q4 SEEN BETTER THAN Q3

Profits from Samsung's chip business more than halved to 1.59 trillion won, but the division held up well as its relatively high exposure to lucrative mobile chips helped the firm offset a sharp plunge in prices of commodity computer memory chips.

Samsung was the sole profitable firm among major global dynamic random access memory (DRAM) chip makers in the third quarter.

Second-ranked computer memory chip maker Hynix Semiconductor (000660.KS) and Japan's Elpida Memory (6665.T) swung to deep losses as prices of DRAM chips used in PCs tumbled about 50 percent in the third quarter.

Samsung's chip business is also benefiting from strong demand for mobile processor chips used in Apple's iPhone and iPad tablet as well as its own Galaxy smartphones.

Samsung expected demand for PCs to remain weak in the fourth quarter because of weak seasonality, while demand for mobile devices and servers will be relatively strong.

"I see some signs that chip prices have hit bottom as inventories are running out. However, we don't yet know when the industry is going to pick up since macroeconomic uncertainties overshadow the demand outlook," said Park Hyun, an analyst at Tong Yang Securities.

Samsung's display business posted losses for a third consecutive quarter on weak demand for TVs and PCs.

But losses narrowed from the previous quarter, helped by strong earnings from the OLED display, which is widely expected to replace LCD as the next-generation flat-screen in mobile devices and TVs.

($1 = 1,115.250 Korean won)