Samsung's smartphones are by far the biggest contribution to the company's revenues

Samsung steps up investment in components

Electronics giant Samsung plans to increase investment into semiconductors and display panel manufacturing in order to reduce its dependence on Galaxy sales.

Revealing its quarterly business results today, Samsung has reached record profits for a sixth consecutive quarter. The results, however, were mostly driven by the sales of the Galaxy S4 smartphone that managed to attract ten million buyers in the first month after its launch in April.

Samsung’s smartphone-making division is the biggest driver behind the company’s success with other divisions lagging behind. To overturn this trend, Samsung has set out a plan of record-high capital expenditures to boost the production of memory chips and strengthen its position in the mobile processor market.

Out of Samsung’s £14bn of annual capital spending, £7.5bn will go to the semiconductor business with further £3.8bn having been allocated to the display panel business.

"It's a move to seek all-around growth and balance out what is now centred on sets," which include mobile handsets, said Lee Sei-chul, an analyst at Meritz Securities.

Despite having dispatched approximately 72.4 million smartphones in the last quarter, more than twice as much as Apple, the company’s shares have dropped by 14 per cent since January, cutting $30bn (£20bn) from its market value.

The move towards the component business is probably motivated by the fear that global smartphone market will soon become saturated.

In the latest quarter, Samsung's display panel business posted a higher profit over a year earlier thanks to demand for advanced OLED displays, used primarily in Galaxy smartphones. Even as PC shipments fell in the spring quarter, demand for tablet PCs and data servers propped up prices of memory chips accounting for larger semiconductor profit.

In smartphones, Samsung is also facing a similar challenge to Apple as consumers are increasingly buying its older less expensive models rather than the latest version.

"Entering into a typically strong season for the IT industry, we expect earnings to continue to increase. However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphone and other set products," Samsung's executive vice president said.

Samsung's April-June net profit jumped 50 per cent over a year earlier to £4.5bn below the market forecast of £4.65bn, according to a survey conducted by FactSet, a financial data provider.

Operating profit was also at a record high of £5.56bn, up 48 per cent. Sales rose 21 per cent to £33.56bn.

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