Samsung overtakes Apple as the world’s most profitable company

Samsung model © Samsung
Samsung: looking at a bright future

The tech giant has stumbled from product failures to corruption trials – is this its time to shine? Alice Gråhns reports.

“Wholehearted congratulations are in order for Samsung,” says Tim Culpan on Bloomberg Gadfly. Not only is the firm set to overtake Apple as the world’s most profitable company, but it has also surpassed Intel as the world’s biggest chipmaker.

Last week the South Korean tech giant announced it expects its operating profit for the quarter ended June to come in at $12.1bn – a 72% year-on-year increase – while its shares have risen 113% since last January. “Things look rosy for the coming quarter too” as the company enjoys a near-monopoly over OLED displays, which are being used in the new generation of phones (including Apple’s iPhones) and tablets.

The strong figures provide some relief for “a conglomerate and a country that have spent much of the past year lurching from crisis to crisis”, says Amie Tsang in The New York Times. The humiliating recall of overheating smartphones wiped out Samsung’s third-quarter profit last year, while the firm also battled hedge fund Elliott Management call for a split of its flagship electronics company and a $27bn payout to shareholders.

Worst of all, Samsung’s de facto boss, Lee Jae-yong, has been arrested for alleged bribery. His trial is considered a major test of “whether South Korean authorities have finally become willing to tackle the cosy relationships between the government and the corporate world”.

Yet “Samsung itself thinks [its]dominance will continue”, says Culpan, evidenced by $18bn in new semiconductor investments as well as an expansion in display-manufacturing capacity. With growth in the global electronics market slowing, “this amounts to a land grab”. It’s a dangerous game, but Samsung’s size means another round of overcapacity may play to its advantage, although it “wouldn’t escape unscathed”.

Apple – which is now both its arch-rival and a key customer – is working hard to find new suppliers for OLED screens, but until it does Samsung “may hope the iPhone maker does better as well”, says Jacky Wong in The Wall Street Journal. Strong sales of the new iPhone should benefit Samsung.

In addition, a global memory-chip shortage has pushed up prices and these are “likely to keep rising”, says Robyn Mak on Breakingviews. With rivals Intel and SK Hynix racing to fill the supply gap, “the blessing may not last long”. However, Samsung is no stranger to the sector’s volatility, hence “investors can take comfort that other units, like displays and smartphones, can cushion a slowdown”.

Carillion: heading for a break-up?

Shares in support-services group Carillion have plunged by more than 70% after a profit warning. The chief executive, Richard Howson, has resigned and the outlook for the firm is uncertain. “Carillion has driven headlong into a brick wall,” says Jim Armitage in London’s Evening Standard. The firm took an £845m hit on a clutch of contracts. As a result, the dividend has been ditched and it is launching a £125m fire sale of businesses.

Yet even after flogging its non-core contracts, it needs to raise at least £500m to shore up its finances, which include debt of nearly £700m and a £600m pension deficit. With the firm’s entire equity valued at far less than this figure, “quite who is going to bail it out is anyone’s guess”.

Carillion has been one of the UK’s “most-shorted” stocks for a long time as hedge funds have placed bets on the price falling. So how on earth did professional fund managers who clung to the stock “miss the trouble, given how clearly it was signposted”, Matthew Vincent asks in the Financial Times.

The firm’s contract accounting looked optimistic, its dividend unsustainable, its debt high and its cash conversion weak. The short selling “was the City equivalent of a massive sign saying: ‘Trouble Ahead!’”. Whatever the excuses, now all options are on the table, “which means a break-up or sale of the company must be considered”, says Christopher Williams in The Daily Telegraph.

City talk

• “It’s mean to pick on Persimmon” for the housing crisis, says Alistair Osborne in The Times. Britain’s biggest housebuilder has just produced an excellent first-half trading update and it’s building more houses. But to deliver the 250,000 new houses a year Britain needs to keep up with population growth is challenging, says CEO Jeff Fairburn. There are skills and materials shortages but most importantly, “it’s not in the firm’s interests”. Indeed, Fairburn is “paid to run a ‘balanced’, cash-returning business for investors, not hit the government volume targets”.

• Many of Reckitt Benckiser’s products tend to be kept under the kitchen sink, but the group’s latest trading update suggests it might have indulged in some “kitchen sinking” of its own, says the FT’s Lex column. Last week, the consumer-goods company became the first corporate victim of the Petya malware attack in June to quantify its impact, as it announced underlying second-quarter sales would be down around 2% (£100m). But as British airways owner IAG has shown, markets are quick to forget about IT problems so “worry instead about reputational issues… or about the company’s high rating; its shares trade at 22 times forecast earnings”.

• Michael Spencer, chief executive of City broker Nex and former treasurer of the Conservatives, ought to know better, says Nils Pratley in The Guardian. Corporate donations to political parties were deemed unacceptable decades ago, so “Nex’s donation of £25,000 of shareholders’ cash to fund five Tory candidates at the general election was bound to provoke a storm”. Chairman Charles Gregson has now agreed to reimburse the firm out of his own pocket. “But he should also drop Nex’s bleat about £25,000 being a ‘modest’ sum. It’s the principle that stinks.”