- Samsung Electronics set to report 13.29 trillion Korean won ($11.5 billion) in second quarter operating profit, higher than analyst estimates of $10.49 billion for Apple in the same period.
- It would be the first time Samsung's profit would be higher than Apple's.
- The semiconductor division is likely to drive profits higher, with strong contributions from the Galaxy S8 smartphone, and OLED display panels.
Samsung Electronics is set to record its highest ever quarterly operating profit, which is likely to surpass that of Apple's for the same quarter for the first time ever, analysts told CNBC on Thursday.
The South Korean electronic giant is set to release earnings guidance on Friday, where it will highlight what it expects to see in terms of revenue and operating profit for the June quarter.
Samsung it set to record a second quarter operating profit of 13.29 trillion Korean won ($11.5 billion) on revenues of 58.79 trillion Korean won, according to Reuters data. In the same period, Apple is expected to report revenue of $44.9 billion and an operating profit of $10.49 billion.
If the estimates are correct, Samsung's operating profit would represent a 63 percent year-on-year increase.
This would also be the first time that Samsung has recorded higher quarterly operating profit than Apple.
Some analysts are even more bullish with Jeff Kim of KB Securities suggesting in a note this week that operating profit would reach 13.4 trillion Korean won.
Samsung chip business to surpass Intel
While Samsung has traditionally been known for its strength in the smartphone market, it's semiconductor business is booming as the company has been trying to reduce its reliance on mobile and build up in other areas.
Neil Campling, head of technology, media, and telecoms research at Northern Trust Capital Markets, said that semiconductors are likely to contribute 60 percent of the company's operating profit in the second quarter, making it the largest division.
Earlier this week, Samsung announced plans to invest $18 billion in South Korea in its chip business, to boost its lead in the market.
The semiconductor business is likely to be the key driver behind the record-high earnings, which are set to be released in full later this month.
Campling said that he expects the semiconductor division to pull in 17.5 trillion won or $15.13 billion of revenues, which is ahead of analyst estimates for $14.4 billion of revenues for Intel's entire business. The analyst has a buy rating on Samsung's stock and a sell rating on Intel.
A number of trends are driving the uptake of so-called NAND and DRAM chips Samsung produces which can be used in devices such as laptops and smartphones, through to data centers.
Prices for these semiconductors have been increasing which is helping Samsung's revenue. At the same time, global DRAM demand is likely to be up 24 percent year-on-year in 2017, outstripping supply, according to KB Securities, with shortages likely to remain in the second half of the year. This is helping to drive prices higher.
At the same time, there is growing demand for servers in data centers and the demand for cloud services and smartphone content.
"Figures of demand associated with data centers have not been accurately estimated, but data usage among consumers is surging, while relevant companies are making larger-than-expected server investments for data analysis and application," Kim said in a note.
iPhone 8 to help Samsung
Samsung also makes organic light-emitting diode (OLED) panels, which offer brighter displays and better power efficiency over liquid crystal displays which are currently in use in some smartphones.
Earlier this year, Apple reportedly ordered 70 million OLED panels from Samsung for its upcoming anniversary edition iPhone 8. Increased price rises in OLED panels as well as increased demand from the likes of Apple, could help Samsung see record high earnings in the display division of the business, Kim said.
Operating profit in the display division could jump to 1.7 trillion Korean won in the second quarter, from 140 billion Korean won a year ago, a more than 10-fold increase year-on-year.
Galaxy S8 to drive sales
The June quarter will be the first time investors get to see the earnings impact of the flagship Galaxy S8 smartphone launched by Samsung in March.
Analysts have been bullish on the potential of this device with even Samsung saying that pre-orders for the smartphone outpaced those for the Galaxy S7, which is the previous model.
Daiwa Capital Markets said in a note last week that it expects 19 million units to have been sold, marking a 38 percent quarter-on-quarter rise in the average selling price of Samsung handsets, and a 70 percent quarterly rise in operating profit for the mobile division.
Shares could see 33% upside
Samsung shares are up just over 33 percent year-to-date thanks to continued strong earnings and analysts remain bullish. There are 11 "strong buy" ratings on the stock, 26 "buys", and 2 "holds". There are no "sell" or "strong sell" ratings, according to Reuters.
The mean price target on the stock is 2,788,218 Korean won per share, which represents 16 percent rise from Thursday's close. But some in the market think shares could go even further.
Daiwa analyst SK Kim raised his price target last week to 3,200,000 Korean won from 2,890,000, which if realized, would mark a further 33 percent increase.