Samsung Electronics said Friday it expects profits to soar by nearly 50 percent in the December quarter, as strong memory chip prices push earnings to their highest point in three years despite a smartphone recall fiasco.

The world's largest memory chip and smartphone maker estimated its operating profit in the October-December period at 9.2 trillion won ($7.8 billion), up 49.8 percent from a year earlier.

The news sent Samsung shares rising 1.9 percent.

Brisk sales of memory chips and smartphone screens had been expected to boost the company's bottom line but the outcome exceeded analyst expectations of a fourth-quarter profit of some 8.4 trillion won.

"This is well beyond market expectations", Gred Roh, an analyst at HMC Investment Securities told AFP.

The strong result came despite a global recall of the Galaxy Note 7, after owners reported some devices overheating and bursting into flames, in a crisis that damaged the reputation of the world's largest smartphone maker.

Strong sales of organic light-emitting diode screens for smartphones and a weaker won also contributed significantly to the earnings growth, analysts said. 

The result was the largest since the third quarter of 2013 when the company reaped a 10.2 trillion won operating profit. 

"The company benefitted from strong demand for memory chips and hectic sales of its high-end smartphone screens using organic light-emitting diodes (OLED)", Roh said.

Chip prices are expected to continue rising in coming months and may surge more than 30 percent in the first quarter alone, he said.

The depreciation of South Korea's won against the dollar also contributed to the gains, as Samsung settles most of its component sales in the US currency, he added. 

Kim Dong-Wan at Macquarie Securities said global memory chip markets made a turn for the better in the third quarter last year, thanks to soaring demand for high-powered mobile devices.

Profit margins for OLED screens were hovering at more than 20 percent and Samsung has no competitors in plastic OLEDs supplied to iPhones, he added.

Fourth-quarter sales were estimated at 53 trillion won in the quarter, down 0.6 percent on year, Samsung said.

Samsung predicted its operating profit for the whole of 2016 would rise more than 10 percent on-year to 29.2 trillion won.

IBK Securities analyst Lee Seung-Woo said apart from its memory chip sector, IT and mobile businesses also outperformed market.

Song Myung-Seop, an analyst at Hi Investment & Securities, said Samsung's first-quarter operating profit this year was likely to reach 9.5 trillion won, thanks to strong semiconductor and display sales.

The rebound in profit suggests Samsung is fast recovering from fallouts from the recall its flagship Galaxy Note 7 smartphones last year.

In October, it reported some 30 percent profit plunge following the recall crisis.

The decision to discontinue production of a model aimed at competing with arch-rival Apple's iPhone was a devastating move for a company that prides itself on the quality production of cutting-edge technology.

Source: AFP