By Miyoung Kim
SEOUL (Reuters) - Samsung Electronics Co Ltd <005930.KS> is on track to post a record $9.3 billion quarterly profit as a rebound in its semiconductor business shields the South Korean tech giant from a slower smartphone market.
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 - 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 semiconductor market further tightened following a fire in early September at a China plant owned by the world's No.2 memory chipmaker SK Hynix.
"Stronger memory prices, made even better with the Wuxi DRAM (dynamic random access memory) fab fire, are driving Samsung's next leg of profit growth," Bernstein analyst Mark Newman said.
Samsung, due to release its earnings guidance for July-September on Friday, likely increased its quarterly operating profit to 9.96 trillion won, according to a survey of 34 analysts by Thomson Reuters I/B/E/S.
The company's chip business will likely post a profit of around 2.4 trillion won in the three months ended September, the highest since the third quarter of 2010, and accounting for around one quarter of overall earnings.
Contract DRAM chip prices jumped 9 percent in the second half of September from the first half of that month while spot prices soared 37 percent.
UBS estimates supply of DRAM chips by SK Hynix would shrink by 14 percent in the fourth quarter, plunging the overall DRAM market into a supply deficit of some 7 percent. The South Korean firm aims to fully restore operations in November.
"It has become more of a seller's market as there are now only just a couple of major memory chip makers left," said Byun Han-joon, an analyst at KB Investment & Securities. "The upcycle could last longer than many had initially thought."
Shares in Samsung advanced as much as 3.1 percent on Wednesday. Financial markets in South Korea were closed on Thursday due to a public holiday.
Samsung's operating profit likely rose 5 percent from the previous quarter and 24 percent from a year earlier, its slowest year-on-year growth since the third quarter of 2011 when profit shrank 11 percent.
"Earnings at its handset business have peaked ... and Samsung will be pressed to discuss how it can stop profits falling sharply from here," said Byun at KB.
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 slows and the high-end market rapidly saturates, analysts say.
Barclays estimates S4 smartphone sales will have dropped to 16 million sets in July-September from around 20 million in the two months following its late April debut. Sales may slip further to 13 million sets in the fourth quarter, according to Barclays.
Samsung is widely expected to have sold 86-88 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.
Profits at its mobile division are seen at 6.4 trillion won, better than the second quarter's 6.3 trillion won but down from a record 6.5 trillion won in the first three months.
Further capping Samsung's earnings upside, televisions, home appliances and TV screen displays are struggling with weak sales, as plunging emerging market currencies increase the cost of raw materials, which are based in the U.S. dollar.
Intense price competition in TVs has also put its margins under pressure.
Samsung's smaller rivals are also reeling.
Japan's Toshiba Corp <6502.T> said this week it would slash 50 percent of staff in its loss-making TV unit and cease production at two of its three overseas factories before the end of this fiscal year, while German high-end TV maker Loewe AG filed for insolvency on Tuesday.