Samsung vs. Apple

Will Samsung's success in Smartphones help the bottom line on a consistent basis? A bit of a risky assumption given the competition they face from Apple. We also know full well that people held back purchases of a new phone with the news of the release of the Iphone4s (I did). Those new record sales from Apple will be in the next quarter reported, so we will see how Samsung does in the next round. Overall this continues the issue with the struggle in the consumer electronics industry to profit from this business.

JZ

By EVAN RAMSTAD

SEOUL—Samsung Electronics Co. made headlines for passing Apple Inc. in smartphone shipments during the just-ended third quarter, but the company's results also showed that it is making headway in reducing the volatility of its profits, a development that is likely to have longer-term significance for investors.

Samsung's profits have made broad swings for years, usually due to pricing forces in the chip industry that were beyond the South Korean company's control. The quarterly results that Samsung released Friday—a 23% drop in profit against a record result in the year-earlier period—were better than expected and, coming amid global economic uncertainty, amounted to a sign that long-term structural bets were starting to pay off for the company.

"Our efforts to create a balanced earnings structure between component and set businesses are beginning to materialize, which will lead to more stabilized earnings," Robert Yi, the company's chief of investor relations, told analysts during a conference call.

Samsung became a force in the electronics industry in the 1980s and later a mainstay holding of emerging-market investors. But all that time, Samsung shares have been subject to big swings in value, mainly shaped by the ups and downs of pricing and profits in memory chips, which for years was Samsung's biggest business.

Even now, analysts' research and forecasts for the company's earnings—and even Samsung's daily share-price movements—are influenced heavily by expectations and developments in the semiconductor market.

But the latest results showed that a multiyear effort to diversify Samsung's chip business had reduced the impact that the current cyclical downturn in prices of memory chips for personal computers had on the company. Sales of memory chips for data centers and fast-growing sales of logic chips, which Samsung makes for digital cameras and other gadgets, provided a cushion to the division's profitability.

Meanwhile, the rise of smartphones pushed Samsung's cellphone business past the chip business in both revenue and profit. The two businesses together offset a third consecutive loss in Samsung's liquid-crystal-display division and marginal profit in its consumer-products unit.

Samsung's net profit totaled 3.44 trillion won, or $3.11 billion, in the third quarter, down from earnings of 4.46 trillion won in the same period a year earlier. Revenue increased 3% to 41.27 trillion won from 40.23 trillion won.

The company shipped about 88 million cellphones during the quarter and about 28 million smartphones, which have higher profit margins, passing Apple's shipment of 17 million smartphones.

Samsung shifted its cellphone mix sharply into smartphones this year. In the third quarter of last year, the company shipped 71 million cellphones, just seven million of which were smartphones.

The change drove Samsung's telecommunications unit to a third-quarter operating profit of 2.52 trillion won, about 59% of the company's overall operating profit of 4.25 trillion won.

The unit's operating-profit margin of 16.9% was the highest since 2004, and executives said they expect it to stay in the high teens for the next few years.

The company since April has been engaged in a high-profile legal battle with Apple over smartphone and tablet-computer patents and lost some preliminary court rulings in several countries. But Friday's results showed that the dispute has had little impact on Samsung's performance so far.

Write to Evan Ramstad at evan.ramstad@wsj.com