Operating profit jumped to a record 8.8 trillion won ($8.3 billion) in the three months ended December, Samsung said in a statement of preliminary results today. That compares with the 8.5 trillion-won average of 35 analyst estimates compiled by Bloomberg. The company didn't give net income or unit figures.
Demand for Galaxy Note II and Galaxy S III phones helped Samsung boost revenue 18 percent to 56 trillion won as glitches with mapping software dented sales of iPhone 5s. The Suwon, South Korea-based company's use of in-house chips and displays gives it an edge in product development and allows it to keep a greater share of sales.
"Earnings will continue flying high," said Kim Hyung Sik, an analyst at Taurus Investment Securities Co. in Seoul. "Samsung's wide range of businesses is paying off handsomely."
The company sold about 62 million smartphones in the quarter, compared with Apple's 45 million, according to a Daewoo Securities Co. estimate. The iPhone 5 went on sale in September.
Fourth-quarter operating profit may be 200 billion won higher or lower than today's estimate when audited results are announced later this month, Samsung said. Sales may differ by as much as 1 trillion won.
Earnings at Samsung's mobile-phone unit, its biggest profit driver, probably doubled to 5.7 trillion won, according to a Bloomberg News survey of five analysts.
The display unit likely made a 1.1 trillion-won profit, compared with a loss a year earlier, according to the survey.
"Samsung was the major beneficiary of slower-than-expected sales of Apple's iPhone 5," said James Song, an analyst at Daewoo Securities in Seoul. "The biggest challenge ahead is whether it can maintain its competitiveness in the smartphone market as high-end products are expected to be released by big players like Apple and Google."
The South Korean company is in a global patent legal fight with Cupertino, California-based Apple. The U.S. phone-maker is also Samsung's biggest customer as its chips are used in iPhones.
Samsung fell 1.3 percent to 1,500,000 won at the close of trading in Seoul. The company surged 44 percent in 2012, compared with a 31 percent gain for Apple in New York.
Earnings may have disappointed some investors because expectations were rising ahead of the statement, said Sean Kim, a Seoul-based analyst at Standard Chartered Bank Plc. The company also has to grapple with a stronger won, which dents the repatriated value of overseas sales.
"The biggest risk factor is the strengthening Korean won," Kim said. "In the longer term, possible price competition in the smartphone space also poses a risk."
The won traded at about 1,063 to the dollar today. It may hit 1,030 this year, according to Standard Chartered. The currency has strengthened about 9 percent in the past year, the biggest gain among major Asian currencies, according to data compiled by Bloomberg. The yen has weakened 12 percent, the largest drop, aiding Samsung's Japanese competitors Sony Corp. and Sharp Corp.
Sales of the Galaxy S III reached 30 million units within five months of its May debut, Samsung said in a Nov. 4 statement. The company also is reaping profits from its Galaxy Note II phone-tablet device, introduced in September, which reached sales of more than 5 million units as of November.
Galaxy S III sales may suffer this quarter ahead of the anticipated introduction of the Galaxy S IV in the following three months, said Taurus Investment's Kim. Still, the company will maintain its top position in the global handset market because of mid-end smartphone sales, he said.
"The continued strong sales of its smartphones will create synergies with its component businesses," Kim said. "It can also develop products faster than any other companies out there because of its vertically integrated structure."
The company may also have to book charges this quarter following a U.S. court ruling in its patent fight with Apple, said Greg Roh, an analyst at HMC Investment Securities in Seoul. Apple won a $1.05 billion damage award against the Korean company in a lawsuit in August.
"There is a risk that Samsung may have to set aside the provisions," Roh said. Earnings may "turn for the better" in the second quarter on the possible introduction of the Galaxy S IV, he said.
Apple last month failed in a bid to block sales of some Samsung devices, fueling speculation the damages could be reduced. U.S. District Judge Lucy H. Koh in San Jose, California, said in a Dec. 18 ruling that Apple didn't establish that consumer demand for Samsung products was driven by technology stolen from the U.S. company.
The European Union is also probing whether Samsung violated agreements to license key patents to other mobile-phone makers on fair terms. Samsung said last month it's withdrawing injunction requests against Apple in Europe involving key patents it holds for wireless communications, citing "the interest of protecting consumer choice."
Samsung, also the world's biggest supplier of ultra-thin organic light-emitting diode, or OLED, displays, probably saw rapid growth at its display business in the final three months of 2012, largely driven by sales of its own mobile devices, David Choi, an analyst at SK Securities, said before the earnings announcement.
Operating profit at Samsung's chip business was estimated at 1.52 trillion won in the fourth quarter, down from 2.31 trillion won a year earlier, according to the survey.
Earnings at Samsung's consumer-electronics business, including TV operations, probably fell to 530 billion won from 620 billion won a year earlier, while sales were probably unchanged as consumers put off purchases of high-end TVs with voice-recognition capability and 3-D displays, according to the Bloomberg News survey.