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October 04, 2013

Samsung Electronics Notes Q3 2013 Operating Profit Will Set New Record

Early this morning Samsung Electronics announced - ahead of its actual Q3 2013 earnings call due in several weeks - that it anticipates it will report record-setting operating income for the quarter of $9.4 billion. The increase represents a 25 percent increase year over year, and trumps analyst consensus earnings estimates of $9.3 billion. Perhaps $100 million seems like a rounding error, but that is in fact a substantial leap overall.

Q3 2013 revenue also set a record, with a year over year increase of 13 percent to $55 billion. We suppose good news is hard to contain though we also need to note that Samsung did not release any information on net income or any other important details. That is interesting - perhaps net income hasn't quite kept up in the record-breaking department.

It will be quite interesting to see where the revenue is coming from. Most analysts believe that the real money is coming from the solid sales of the much less expensive end of the company's smartphone lines. That certainly would not surprise us though it will be interesting to see where Samsung ends up on profit margins. The company no doubt sells huge numbers of its mid and low priced devices - in fact it is these devices that allow Android to claim the high percentages of market penetration it has - but in the end there can't be much money to be had per device. 

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We can also count on improved revenue and profit from the company's other major arm - its semiconductor businesses. This end of Samsung's business continues to do quite well, and of course it helps the financial picture overall when Samsung merely needs to turn to itself for critical semiconductor components for its mobile devices and other electronic products (smart TVs, laptops and so on).

When Samsung first announced the Galaxy S4 the company was set to ramp up to deliver 100 million of them in 2013. At the time we were flummoxed by how Samsung thought it could sell anywhere near that many of them and we predicted they wouldn't come close. We will absolutely be looking for that number (which also affects profit margins) when the full earnings report is made available.

Samsung last month also announced its new big, stylus-enhanced Note 3 smartphone, along with the new Galaxy Gear smartwatch. Along the way the company's latest iteration of its Tab 10.1 tablet shipped. None of these devices will have any influence for Q3 numbers.

Of course we are now entering the holiday buying season and Q4 will certainly be hugely influential as far as how many S4s end up being sold in 2013. We still doubt they will add up to anywhere near 100 million total S4s, but we'll give Samsung the benefit of the doubt for now. The company should also see solid sales of the Note 3, but don't expect the much-maligned Galaxy Gear smartwatch to contribute much in the way of device sales or revenue.

We should note as well, while we're at it, that very recently Samsung was accused by the federal courts (and should soon be joined by the ITC on this) of misbehavior and violation of key patent confidentiality laws. Apparently the company has managed to get its hands on - and has disseminated to numerous upper level management people - what were thought to be top secret details of a highly confidential licensing deal between Nokia and Apple. This is all immaterial to likely Q4 2013 revenue but may have a longer term impact on 2014-2015 earnings.

Edited by Alisen Downey

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