Samsung Electronics reports record annual sales in 2011

Samsung Electronics said Friday that it topped 160 trillion won (138 billion U.S. dollars) in annual sales for the first time in 2011. For the second straight year, the company topped 15 trillion won (12.9 billion dollars) in operating profit on the back of more than 150 trillion won (129 billion dollars) in sales.

Samsung said a preliminary sales tally on a consolidated basis in last year`s fourth quarter suggested that it reached 5.4 trillion won (4.6 billion dollars) in operating profit on 47 trillion won (40 billion dollars) in sales, both quarterly records for the electronics giant.

The company is forecast to post 16.15 trillion won (13.9 billion dollars) in annual operating profit on 164.7 trillion won (142 billion dollars) in annual sales in 2011. From 2010, annual sales rose by 6.5 percent and annual operating profit shrunk by 6.6 percent.

○ Robust performance due to world lead in smartphone sales

Samsung sources said the company`s performance was an exaggeration as the numbers reflect about 700 billion won (603 million dollars) in proceeds from the sale of its hard disk business to Seagate of the U.S., expressing a cautious stance. Considering the difficulty that the global electronics industry underwent due to economic uncertainty, however, outsiders say Samsung`s performance is still outstanding.

The Galaxy smartphone series is considered the biggest contributor to Samsung`s record in the fourth quarter. Stock analysts say operating profit in the company`s mobile device business accounted for 2.6 trillion won (2.24 billion dollars), or about half of its overall operating profit.

Samsung shipped 27 million smartphones in the third quarter to rank No. 1 in the global smartphone market and thus defeat Apple, which sold 17.1 million units. Samsung is believed to have shipped more than 30 million smartphones in the fourth quarter as well, keeping its world lead in the market. It also reportedly earned considerable profit from semiconductors due to robust sales of non-memory chips, including application processes for smartphones, despite the plunge in DRAM prices.

○ 20 trillion won (17.2 billion dollars) in operating profit?

2012 will likely be a year more important to Samsung than before. The company should rise to the world`s top spot in the overall mobile handset market, as well as in smartphones.

To this end, Samsung plans to consolidate its leadership position in the premium smartphone market with products introduced late last year, and aggressively target the mid- to low-cost smartphone market by introducing entry-grade smartphones, a segment led by Nokia.

A key factor to determine Samsung`s performance this year is if demand for semiconductors and LCD panels, in which the company struggled last year due to steep falls in prices, will rebound and if so, to what extent. Another variable is the size of demand that subsidiary Samsung Mobile Display will generate for OLED displays for smartphones this year.

In the TV business, companies are set to ship 3-D and smart TV sets this year. Whether Samsung Electronics will keep its market lead in the premium TV market will be the key.

The securities industry predicts Samsung Electronics could potentially top 20 trillion won (17.2 billion dollars) in annual operating profit this year.

Shin Hyeon-jun, researcher at Dongbu Securities in Seoul, said, “In this year`s stock market, in which consideration for investment will likely be thoroughly focused on operational performance, Samsung Electronics is virtually the only promising player."

Many say Samsung Electronics cannot afford to be complacent, however. The BBC said in a recent commentary that the company`s situation is similar to Sony`s in the 1980s, when the latter topped the global market, warning that if Samsung fails to change its operations to become more global, it could face a downward trajectory just like Sony did from the 1990s.

jaeyuna@donga.com teller@donga.com