Samsung cashes in on chips as smartphone sales stall

Samsung Electronics is on track to post record earnings for the second consecutive year as the company's semiconductor business shields it from a slowdown in the smartphone market.

The South Korean firm's memory chip business is likely to hit a three-year high, just in time for the flagging sales of the flagship Galaxy S4 smartphone to hurt, analysts interviewed by Reuters say.

As the popularity of mobile devices including smartphones and tablets took hold, the semiconductor market improved, and now many companies are tapping the potential of providing high speed and efficient chips used in these devices.

While Samsung is well-known in the consumer sphere due to its home appliances and mobile devices, the company is also the world's biggest memory chip supplier. The firm's business is on the rise, not only because of smartphone popularity, but also due to the recent hike in chip prices due to a fire which broke out at a SK Hynix factory last month.

The factory produces dynamic random access memory chips (DRAM), and now that supply has been scuppered, chip market tracker DRAMeXchange says that the rise in price is likely to persist in the coming months due to short supplies -- and therefore Samsung is likely to profit.

UBS estimates supply of SK Hynix DRAM chips will shrink by 14 percent in the fourth quarter, which plunged the overall DRAM market into a supply deficit of approximately 7 percent.

Lee Seung-woo, a tech analyst at IBK Investment & Securities said:

"As of now, there is no real competitor for Samsung in the (memory) chip business. 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 predicts that it will post a record profit of 10.1tr Korean won ($9.4bn) for its third quarter. In pre-earnings guidance, the electronics giant said sales would reach roughly $55 billion. According to analysts polled by the news agency, Samsung will post an operating profit of 38.5 trillion won ($35.85 billion) this year, up a third from 2012.

Samsung makes approximately two-thirds of its profit from smartphone and tablet sales. In the second quarter, the firm forecast lower-than-expected profit margins, which suggested that the mobile device industry was reaching a saturation point. However, memory chip research, development and sales can provide a cushion for the firm until its rumored new flagship model, the Galaxy S5, hits stores.