Samsung profits soar by 90% on Galaxy, Note sales, but legal damages could hurt

Samsung Electronics said Friday that stronger-than-expected sales of its Galaxy smartphones sent operating profits up 90 percent in the latest quarter, but analysts warned its results could take a hit in the coming months as it books legal damages owed to Apple.

The South Korean electronics giant reported an operating profit of 8.1 trillion won (US$ 7.3 billion) for the July-September period, almost double the 4.25 trillion won it made a year ago. That beat an average analyst estimate of 7.58 trillion won during the quarter compiled by Bloomberg.

The company released the numbers, which did not include its net profit or breakdown for each business group, ahead of its official earnings release on 26 October. Operating profit is generally seen as a reflection of business operations, while net profit includes other factors, such as legal fees.

Backed by aggressive marketing prior to the iPhone 5 release (see humourous Samsung ad below), Samsung is expected to have shipped 57 million smartphones in the quarter, according to Jeff Kang, an analyst with Daishin Securities in Seoul.

Samsung probably sold 17 million units of its flagship Galaxy S III and 6 million of its Galaxy Note 2 smartphone-tablet hybrid that launched last week in Korea, according to Won Seo, an analyst with Korea Investment and Securities. In contrast, Apple said sales of its iPhone 5 topped five million in the first three days after its release.

"We lifted our estimates as robust Galaxy S3 sales should bolster handset sales and margins," Seo said, in a research note. "In 4Q, the upswing should continue with the release of the Galaxy Note 2."

The Galaxy S III launched in May, while the Galaxy Note 2 will be available in 128 countries this month.

Samsung may face a dent in its fourth-quarter results as it sets aside money to pay damages to Apple when the US District Court for the Northern District of California finalises its verdict in December, Seo said.

In August, the US jury ordered Samsung to pay more than $1 billion in damages to Apple for infringing the iPhone maker's design and software patents. Apple subsequently asked for a permanent injunction against sale of Samsung phones including the Galaxy S III, while Samsung has launched lawsuits against Apple products including the iPhone 5.