Samsung eyes second straight year of record profit

Samsung Electronics Co Ltd is on track to post its second consecutive year of record earnings as a rebound in its semiconductor business shields the South Korean tech giant from a slower smartphone market.

The world’s biggest memory chipmaker is likely to see its semiconductor earnings charge to a three-year high - a much-needed shot in the arm — just as sales of its flagship Galaxy S4 smartphone begin to flag, analysts say.

The global chip market has rallied since late 2012 due to a supply crunch caused by years of cautious investment to support prices, and conversion of factory capacity to produce more profitable chips used in smartphones and tablets.

The market further tightened following a fire in early September at a China plant owned by SK Hynix, the world’s No.2 chipmaker.

The drop in supply helped divert customers to Samsung, whose heavy investment in cutting-edge chip-making technologies has made it head and shoulders above smaller rivals like Micron Technology Inc.

"As of now, there is no real competitor for Samsung in the (memory) chip business," said Lee Seung-woo, a tech analyst at IBK Investment & Securities. "This dearth of players is expected to allow Samsung to post considerable operating profits throughout this year and next year, even if demand flags."

Samsung is estimated to post an operating profit of 38.5 trillion won ($35.85 billion) this year, up a third from 2012, according to a survey of 45 analysts by Thomson Reuters I/B/E/S. The company said on Friday operating profit is likely to reach a record 10.1 trillion won in the third quarter.

Contract dynamic random access memory (DRAM) chip prices jumped 9 percent in the second half of September from the first half of that month while spot prices soared 37 percent.

UBS estimates supply of DRAM chips by SK Hynix would shrink by 14 percent in the fourth quarter, plunging the overall DRAM market into a supply deficit of some 7 percent. The South Korean firm aims to fully restore operations in November.

Shares in Samsung ended Friday unchanged, after advancing as much as 3.1 percent on Wednesday prior to the earnings guidance announcement. Financial markets in South Korea were closed on Thursday due to a public holiday.