Samsung Electronics is on track to post its second consecutive year of record earnings as a rebound in its semiconductor business shields the South Korean technology giant from a slower smartphone market.
The world's biggest memory-chip maker 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 early last month at a China plant owned by SK Hynix, the world's No2 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 technology 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 (HK$277.6 billion) this year, up a third from 2012. The company said yesterday that operating profit was likely to reach a record 10.1 trillion won in the third quarter.
Contract dynamic random access memory (dram) chip prices jumped 9 per cent in the second half of last month from the first half of that month while spot prices soared 37 per cent.
UBS estimates supply of dram chips by Hynix will shrink 14 per cent in the fourth quarter, plunging the dram market into a supply deficit of about 7 per cent.
Samsung estimated third-quarter operating profit rose 25 per cent from a year earlier.
Its mobile devices business has helped the company report a record profit every quarter since last year, except the first three months of this year.
The division is stalling as sales of the Galaxy S4 slow and the high-end market rapidly saturates, analysts say.