Samsung flags Q3 profit hike, but chip prices cast shadow

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Samsung Electronics preliminary results show third-quarter operating profit jumping by a fifth to a record high, but chip costs are casting a shadow over potential long term gains. Laura Frykberg reports.

A quick look into Samsung’s preliminary Q3 results..paint a pretty good picture.

Operating profit jumped by 20.4 percent to a record high of more than $15.5 billion.

Bolstered by robust demand for its most lucrative product:

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(SOUNDBITE) (English) DARREN SINDEN, MARKET ANALYST, PEPPERSTONE, SAYING:

“The vast majority of the profits come from their chip making division and that specializes in memory chips. If you think about the kind of devices you have in your pocket and on your desktop they’re all coming with larger and larger memories and of course more and more devices are becoming intelligent. The Internet of Things is a reality these days and these kind of intelligent devices in our homes are becoming more and more prevalent.”

But on closer inspection it may be a short-lived spike.

Price slides for some types of chips due to competition from cheaper Chinese made phones as well as higher marketing costs ..

Risk undercutting the tech giant’s gains… Chips account for nearly 80 percent of its operating profit.

(SOUNDBITE) (English) DARREN SINDEN, MARKET ANALYST, PEPPERSTONE, SAYING:

“Chip prices fluctuate just like a stock price or a bond price, but it’s about developing new faster better chips with more capacity. And I think those in the production line they carry a premium price they’re less early generation chips. Of course we will sell for for a lower price as new lines are introduced.”

Shares in Samsung rose 0.2 percent on the results on Friday

Relief for investors after Samsung stock lost 12 percent of its value so far this year

on concerns about chip prices, lower than the broader market which has declined 8 percent.