Is Samsung losing its earnings momentum?

Julia Wood | Technology Producer/Correspondent
Samsung Electronics posts record Q3 profits

As competition at the top end of the smartphone sector heats up, analysts warn Samsung Electronics could be starting to lose its earnings momentum.

Samsung, the world's top smartphone maker by shipments, reported yet another record quarter on Friday. However, it forecasted weaker mobile handset shipments of 1-5 per cent in the fourth quarter.

"Although we expect demand to increase next quarter due to peak seasonality, lingering macro-economic issues and intensifying market competition will remain in the fourth quarter," Samsung said in a statement on Friday.

(Read more: Samsung keeps it simple to overtake Apple)

Analysts say the tepid reception of the Galaxy Gear smart watch and Galaxy Round curved smartphone shows Samsung is failing to capture the attention of consumers with its latest product offerings.

"I see the Galaxy Round as more of an experiment," says IDC Analyst Melissa Chau, noting that Samsung must be careful not to "innovate, simply for the sake of innovation".

Similarly, Forrester analyst Sarah Rottman Epps criticized Samsung's "spaghetti-on-the-wall" strategy following the launch of the Galaxy Gear.

While there has been no shortage of warnings about weakening demand at the high end of the smartphone market, demand for tablet devices is expected to take off.

SeongJoon Cho | Bloomberg| Getty Images

Research firm Gartner predicts tablet sales will increase nearly 43 percent in 2014 to 263 million units. At the same time, Gartner expects a trend towards smaller, lower cost devices that will prompt Android-based tablets to overtake sales of iPads this year, with a 49.5 per cent market share.

(Read more: Samsung'scurved phone; new Apple iPads?)

Samsung told analysts on Friday's conference call that it is expecting to see strong fourth-quarter tablet sales growth of 20 percent.

"I see them rising to the challenge to compete with the iPad lineup" IDC's Melissa Chau said.

Another bright spot for third-quarter earnings was profit from semiconductor operations, which more than doubled on year to 2.06 trillion won ($1.94 billion), marking its best performance in three years. Operating margins also improved substantially on quarter, rising to 25% in the third quarter from 20 percent in the previous quarter.

(Read more: Cramer: 'The curtain has closed' on Samsung's smartwatch)

Prices for D-RAM memory chips surged last month after a fire at an SK Hynix factory in China sparked concerns of supply shortages. Samsung expects prices will remain elevated in the fourth quarter as a result of the ongoing supply/demand imbalance.

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