SEOUL (Reuters) - How long can Samsung Electronics' dream run last? Investors in Samsung might overlook that question as the South Korean company repeatedly beats estimates as sales from its mainstay businesses boom in a global economic recovery.
However, rapid spending by leading chip companies and Samsung's weak footing in the lucrative smartphone sector dominated by Apple and Research In Motion could play spoilsport to Samsung's rapid growth.
"Samsung and other vendors won't be able to easily get into the high-end area which Apple and RIM dominate and earn over 40 percent margin. So, no blue ocean for Samsung," said Kim Woo-jung, a fund manager at LS Asset Management, which owns Samsung shares.
Samsung and home rival LG Electronics together control over 30 percent of global mobile market, but their share in the booming smartphone market is below 5 percent.
This week, Motorola Inc beat profit estimates on better-than-expected demand for smartphones, while shares in top mobile phone maker Nokia fell 14 percent as it cut its profit outlook.
Samsung forecast record second-quarter results on Friday and aims to sharply boost spending as consumers snap up gadgets and appliances, marking a steep sector recovery that has benefitted firms including Intel and IBM.
Samsung's diversified product portfolio from components such as chips and LCDs to finished consumer goods such as handsets, TVs and appliances have helped the technology powerhouse beat rivals in earnings growth.
It said it would "substantially increase" spending in 2010 from its previously announced 8.5 trillion won.
The spending plan underscores an aggressive push toward new technology by Lee Kun-hee, who returned as Samsung chairman last month and has orchestrated its successful foray into the chip business since the early 1980s.
Lee, 68, has repeatedly warned most businesses and products that represent Samsung today would disappear from the market in 10 years and the company needed to start again.
Shares in Samsung, valued at around $107 billion, ended 2.9 percent higher in a broader market up 0.8 percent. The shares have slipped 3 percent after hitting a record high in early April on growing worries of oversupply in LCD and chips.
For StarMine valuations data, click: r.reuters.com/wyb22k
For a graphic on Samsung earnings, click: here
For a graphic on Samsung's share price versus rivals; click
For graphic on global quarterly handset sales since 2008: click
In the flat-screens TV segment, Japanese rivals led by Sharp and Sony Corp are fighting to regain lost market share as they boost product offerings such as LED TV and 3D TV sets. A strengthening won could also hit profit growth at South Korean firms.
"I expect earnings to peak at Q3 as seasonal demand for memory chips reaches its highest...there is a gloomy air in its telecommunication segment since it has lost ground on smartphones," said Kim Young-june, an analyst at LIG Investment & Securities, referring to Samsung's outlook.
Samsung reported a 4.4 trillion won ($3.95 billion) operating profit in January-March, beating a consensus forecast for a 4.27 trillion won profit by 13 analysts from Thomson Reuters I/B/E/S.
"We are cautiously optimistic Q2 earnings will improve... As for H2, we are again cautiously optimistic because we expect strong demand for memory chips and LCD to continue, helped by seasonality, as well as continued increase in sales of handsets and TVs," Robert Yi, Samsung's vice president of investor relations, told analysts.
A local paper reported on Friday that Samsung is planning a record 19.3 trillion won spending in semiconductors until 2011 and has started placing equipment orders, as it fails to meet soaring customer demand.
"The DRAM market will likely turn to a slight oversupply in H2, but NAND will remain in a shortage and support the overall earnings," said Lee Min-hee, a Dongbu Securities analyst.
Chips accounted for 44 percent of the company's profit in the first quarter, while telecoms generated a quarter and the rest was almost evenly split between LCD and appliances.
"After peaking at Q3, earnings growth will gradually slow down as strong momentum in chips will start easing," said Song Myung-sub, a HI Investment & Securities analyst.
Samsung competes with Toshiba and Hynix in semiconductors.
Samsung's earnings came above it's median estimate of 4.3 trillion won in a range of 4.1 trillion to 4.5 trillion won given earlier this month. This marked a more than seven fold rise from a year ago and 28 percent from the previous quarter.
Ahead of the results, Samsung was forecast to report 16.1 trillion won operating profit this year on 154 trillion won in sales, as per Thomson Reuters I/B/E/S.
(Additional reporting by Kim Yeon-hee, Jungyoun Park and Kyungmin Suh; Editing by Jonathan Hopfner and Anshuman Daga)
For more business news on Reuters Money visit www.reutersmoney.in