Industry awaits a folding phone from Samsung

Samsung Electronics held a special event celebrating sales of its latest smartwatch, the Gear S2, at the Mecenatpolis Mall in Hapjeong-dong, western Seoul, last weekend. [NEWSIS]

Samsung Electronics, the biggest company in Korea, will announce an estimate of its third-quarter performance on Wednesday.

According to industry experts, including FnGuide, a financial information provider, Samsung Electronics is expected to report 6.58 trillion won ($5.66 billion) in operating profits. That’s 2.6 trillion won more than the 4 trillion won operating profit the company reported in the third quarter of 2014, a 39 percent increase.

The disappointing performance in the third quarter of last year shocked both the local and overseas markets, especially since the Korean smartphone manufacturer was the first company in Korea to announce a quarterly operating profit of more than 10 trillion won in the third quarter of 2013.

But when compared to the previous quarter, Samsung’s third-quarter operating profit would be 320 billion won less than 6.9 trillion won, a 4.8 percent decline.

The market is particularly interested in the company’s smartphone business, as it accounts for 45 percent of overall revenue. Analysts are projecting 2.2 trillion won in operating profit and 23.8 trillion won in revenue for the company’s mobile phone business in the third quarter. If so, that would be roughly 560 billion won less, or 25 percent lower, compared to the second quarter.

Many investors are looking ahead to Samsung Electronics’ performance next year.

It will be difficult for Samsung Electronics to generate profits exceeding market expectations for the final three months of the year, even though the fourth quarter is considered a high season thanks to holidays like Christmas. But as Samsung will be competing head-to-head with Apple’s iPhone 6S, the company will see a sharp increase in marketing expenditures.

Investors are more interested in next year, as there are growing expectations that Samsung will unveil a smartphone that folds, the next stage in the evolution of the smartphone.

In the 1980s, mobile phones were like bricks, which changed when in the 1990s, mobile phones started to fold. Another change came in the 2000s when cameras appeared on phones, and finally by the full-touch smartphone in the 2010s. Changes in hardware created new markets.

“Using OLED display panels created by Samsung Display, the foldable smartphone will likely be 3 inches when folded and 5 inches when unfolded,” said Kim Byung-ki, a Kiwoom Securities analyst. The analyst expects the new foldable smartphone to make its debut in the second half of next year. “In 2017, a foldable smartphone with a 10-inch screen will likely appear,” Kim added. “[Smartphone] products that break the barrier with tablet PCs will be rolled out.”

Other smartphone manufacturers will likely introduce their own foldable smartphones as early as 2018. As a result, Samsung’s mobile phone business operating profits will expand from 10 trillion won this year to 11 trillion won in 2016.

Eugene Investment & Securities is betting the foldable smartphone by Samsung will make its appearance in the second quarter.

“A meaningful share price hike will happen when the company’s competitiveness is again proven with the introduction of the foldable display, which is innovative hardware,” said Lee Jung, a Eugene Investment & Securities analyst.

Lee projects this year’s revenue to reach 200 trillion won and operating profit to reach 25 trillion won. But next year’s revenue will be up to 212 trillion won and operating profit up to 26 trillion won. In 2017, revenue will further expand to 226 trillion won and operating profit to 28 trillion won.

BY KIM HYUN-YE [lee.hojeong@joongang.co.kr]