Samsung Galaxy Phones Help Company Beat Quarterly Profit Estimates

Despite losing a lawsuit to Apple, strong sales of the Samsung Galaxy S III have the world’s largest handset manufacturer poised to reap impressive Q3 profits.

Mobile handset manufacturer Samsung surprised analysts by posting third-quarter guidance indicating a higher quarterly profit for the three-month period ending in September, with operating profits up 91 percent to 8.10 trillion won ($7.3 billion). An aggregate of 32 analysts’ estimates compiled by Bloomberg predicted the company’s operating profit would be 7.58 trillion won.

Analysts said the strong quarterly showing was likely helped by robust sales of the Samsung Galaxy S III smartphone, widely seen as the strongest competitor to Apple’s iPhone 5. By September, Samsung had sold 20 million Galaxy S III handsets just 100 days after its launch.

However, the popularity of Samsung's smartphones masked areas where the company has been experiencing difficulty, most notably its computer memory chips. The company’s biggest customer, Apple has also decided to replace Samsung components in its hugely popular iPhone 5 in two notable areas, including NAND flash; Elpida has replaced Samsung as the supplier of the synchronous dynamic RAM (SDRAM) in an iPhone 5 reviewed by IHS.

“Sales have been very, very good around the world despite the best efforts of Apple to restrain them,” Mark Newman, a Hong Kong-based senior analyst at Sanford C. Bernstein told Bloomberg Television.

The focus is now likely to turn to the discussion of whether or not Samsung will be able to repeat the feat for the fourth quarter, as the company, along with all other smartphone and tablet manufacturers, strives to make the most of the upcoming, highly lucrative holiday shopping season. Other factors that may affect fourth-quarter performance include potential payouts to Apple following a patent infringement lawsuit.

"Fourth-quarter profit will be pressured by one-off expenses: performance payouts and some $1 billion in legal provisioning relating to the Apple litigation. Excluding those, core earnings will remain solid, and a swing factor is how much Samsung spends on marketing," Lee Sun-tae, an analyst at NH Investment & Securities, told British newspaper The Guardian.

However, analysts at Global Equities Research suggested that Samsung would not ultimately have to pay Apple anywhere near the $1 billion it was awarded by a jury this summer. More to the point, the firm said companies like Samsung and Google, thanks to its acquisition of Motorola, are in a stronger position for innovation than Apple because their expertise in technology relates to radios, power management, sensor technologies and synchronization, while Apple has almost zero innovation in those categories.

Global Equities Research also issued a prediction concerning Apple—and they don’t find the future for one of the world’s most valuable tech companies to be particularly promising. “Our research is indicating that probably this is the peak for Apple. The success of a consumer product is dictated by getting the last 2 percent right; somehow, we think, that skill has now left Apple, and Apple may be the new Microsoft, coming with good enough products like Microsoft does,” a Global Equities Research analyst note predicted. “The perfection may not be the hallmark of Apple, as Steve Jobs is no more.”