Samsung’s Galaxy powers record $5.9bn profit

SEOUL — Soaring sales of the Galaxy smartphone drove record quarterly profit of $5.9 billion at Samsung Electronics, though the South Korean tech giant is sweating over how Europe's debt crisis is denting demand in its biggest market for televisions and home appliances. The flagship Galaxy smartphones are likely to have stretched their lead over rivals Apple and Nokia — despite a parts shortage that meant it struggled to keep up with stronger-than-expected demand for its latest S III model.

While strong handset sales grab the headlines, more than doubling profit growth, other businesses such as chips and consumer electronics are battling weak prices and demand and a limp euro, which eats away at repatriated profits. In a sign that the euro zone crisis is exercising minds in boardrooms around the globe, Samsung executives said this week the group was operating to a contingency plan.

"Europe is our biggest consumer electronics market and we may have to initiate cost cuts and product price increases should the euro fall further from the current level," said one executive who didn't want to be named as the plan is internal. "Our smartphones are flying off the shelves, with some outlets reporting 40-60 per cent sales growth, but that's distorting the overall trading outlook which is more challenging due to the weak global economy and a weak euro." The euro has fallen around 5 per cent against the Korean won since April, and about 8 per cent in the past year, to 2-year lows.

In its April-June earnings guidance yesterday, Samsung, valued at $170 billion and the world's leading maker of TVs, smartphones and DRAM memory chips, estimated operating profit jumped 79 per cent to 6.7 trillion won from a year ago — in line with an average forecast in a Reuters survey of 23 analysts. That would be 14.5 per cent higher than the previous record quarterly profit in January-March. Samsung estimated its second-quarter revenue at 47 trillion won ($41.4 billion), just below a 50 trillion won forecast.

"Revenue is below our forecast, which suggests price pressure was more severe than had been expected in products such as televisions and home appliances," said Nho Geun-Chang, analyst at HMC Investment Securities in Seoul. — Reuters