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Samsung 4Q profits top forecasts on Galaxy sales

SEOUL, South Korea (AP) — Samsung Electronics Co. said fourth-quarter profits soared a better-than-expected 76 percent, boosted by the popularity of its Galaxy smartphones.

But the company expects earnings during the current quarter to decline due to seasonally low demand for consumer electronics. It is also leaving its 2013 capital expenditure at the same level as last year, underlining the uncertainty in the demand outlook and concerns about rapidly declining demand for personal computers.

Samsung's shares fell about 1 percent after earnings release.

Net income for the final quarter of 2012 reached 7.04 trillion won ($6.58 billion), a 76 percent surge of 4.01 trillion won a year earlier. Analysts had expected 6.95 trillion won in income, according to FactSet. Sales rose 19 percent over a year earlier to 56.06 trillion won and operating income jumped 89 percent to 8.84 trillion won.

Increased sales of smartphones were the key source of its stellar profit. Samsung, which overtook Apple Inc. as the top smartphone maker last year, said its operating profit from the division that makes and sells smartphones and tablets more than doubled to 5.44 trillion won in the fourth quarter, from 2.56 trillion won a year earlier.

Most analysts believe the Suwon, South Korea-based Samsung shipped more than 60 million smartphones, including the Galaxy S III and Galaxy Note II, during the three months ending in December, which would put the year's smartphone sales at more than 200 million. Apple said it sold 47.8 million iPhones in the quarter.

The company's component divisions that make semiconductor products and display panels also benefited from a rise in demand for smartphones. Sales of mobile processors that power popular devices such as Apple's iPhones and Samsung's own Galaxy smartphones boosted the bottom line.

The recovery in the display panel division was also led by strong sales of advanced mobile-phone screens called OLED, which are mostly found in high-end Samsung smartphones. The display division posted 1.11 trillion won in profit compared with a small loss a year earlier.

Analysts said Samsung will likely see a continued rise in smartphone sales this year, especially in low- and mid-priced models where it sees no competition from Apple. They forecast Apple, which keeps its iPhone price high, will see iPhone sales plateau in coming years as more consumers snap up cheaper phones and more variety in screen sizes.

Bullish analysts, including Young Park at Woori Securities, forecast Samsung smartphone shipments to rise as much as 50 percent this year from 2012 to over 300 million units.

Market researcher ABI Research said last month that Samsung's 2012 smartphone market share topped 30 percent. In comparison, it said Apple's market share will peak at 22 percent in 2013 and remain flat through 2018, seeing a widening gap with Samsung.

Still, Apple's business has been more profitable because of the high price of the iPhone, which generates a larger profit per sales. Samsung, which makes dozens of handset models a year and customizes them for mobile operators, also sells cheaper smartphones and spends about three times more on expenses such as marketing and advertising costs to promote its Galaxy brand televisions.

Even though Samsung's smartphone shipments will likely go up this year, most analysts agree that it will become harder to keep up high profits, as smartphones become more affordable and competition, especially from China, increases.

Samsung, which is expected to introduce a new flagship smartphone in its Galaxy S series as early as April, said consumers seeking to replace its current handset and get a faster wireless connection through LTE network will drive the demand. Part of its strategy to command higher prices from consumers has been adding new hardware features, such as a digital pen in the Galaxy Note series.

Samsung's flexible display technology, which allows tablet computers to fold into mobile phones or bend the edge of the screen, represents an effort to make its products stand out from others. But such technology, which was shown in public earlier this month in Las Vegas, will still need more time for mass production.

Samsung said its profit will be hurt by unfavorable foreign exchange rates this year. Robert Yi, head of Samsung's investor relations, said the negative impact from the foreign exchange rates will exceed 3 trillion won ($2.8 billion), with the loss largely coming from the firm's exposure to the euro.

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