Saturday, 7 April 2012

Samsung expects record earnings

Samsung Electronics, the brightest child of the massive South Korean conglomerate (Samsung Group chaebol) is due to track the phenomenal quarter of its competitor, Apple. The company announced revenues of $40 billion with a quarterly profit of $5.15 billion, beating analyst estimates of $5 billion, on accounts of higher smartphone, tablets, and TV sales. Analysts believe that Samsung won back the title of market leader in terms of volumes on the smartphones market from Apple, selling 44 million devices.

Clash of the titans

Even though the full audited results will only be posted on the 27th of April, these figures show an increasing trend in the popularity of Samsung devices. Two thirds of these revenues were contributed by the handset business, which received a boon from the phone-tablet mutant "Samsung Galaxy Note", selling more than 5 million such devices. The company also enjoys good momentum on the market of semiconductor, which is currently going through a  consolidation, as less efficient companies are loosing steam. As a matter of fact, Samsung supplies semiconductors, the A5 processor chip and NAND memory drives for its biggest competitor Apple. The list of Apple suppliers is available on their website.

Samsung Electronics` (005930:KSC) market capitalization at $191 billion is only a forth of its biggest rival, Apple, which market cap stands at $590 billion. The P/E ratio of Samsung is now at 14.97, as opposed to the one of Apple which is 18.05. Both companies enjoyed spectacular runs in the recent years, with Apple sky-rocketing from near $100, its price in January 2009  to $630, a six fold increase. Samsung Electronics posted "only" a 3 fold increase in this period. All is well now, but with such high growth companies that depend on the popularity of its products, the tide may turn at some point. Remember the cases of Nokia and Research in Motion`s Blackberries, life cycles. Charts from Financial Times:

As a very rudimentary analysis as this may be, and without looking much at the financials of each company, the underlying trends and the almost parabolic rise in Apples stock price signals to me: stay out. Even if I called caution when Apple was at close to $400, the risk that such parabolic movements pose has all but decreased. To be honest, if I were to choose, I would definitely go with the Samsung.

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