A rebound in Samsung’s semiconductor business mean the firm is on track to post its second consecutive year of record earnings.
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 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.
"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 38.5tn won (£22.3bn) 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 10.1tn won in the third quarter.
Contract dynamic random access memory (DRAM) chip prices jumped 9 per cent in the second half of September from the first half of that month while spot prices soared 37 per cent.
UBS estimates supply of DRAM chips by SK Hynix would shrink by 14 per cent in the fourth quarter, plunging the overall DRAM market into a supply deficit of some 7 per cent. The South Korean firm aims to fully restore operations in November.
Samsung estimated third-quarter operating profit rose 25 per cent from a year earlier, the slowest since the third quarter of 2011 when profit shrank 11 per cent. Samsung's mobile devices business has helped the company report a record profit every quarter since last year, except the first three months of 2013.
The division, which generates two-thirds of the company's total earnings, is stalling as sales of the Galaxy S4 slow and the high-end market rapidly saturates, analysts say.
"The concern that high-end smartphones could see slower growth is a valid one. But Samsung has both the speed and fast-follower tendencies of Zara and a portfolio spanning high- and low-end products as well as components such as a brand like Swatch," Lee at IBK said.
Samsung is widely expected to have sold 86 to 88 million smartphones in the third quarter, up from 76 million in the second quarter, as the company increased shipments of cheaper models to emerging markets.
But underscoring the slowing pace of growth in the industry, Taiwan's HTC posted its first ever quarterly loss on today, hit by fierce competition and supply chain constraints.
Samsung is now hoping new products such as the Galaxy Gear smartwatch and a curved smartphone, which it plans to introduce this month, to help sustain growth momentum.