SEOUL (Reuters) - Samsung Electronics, the world's top maker of memory chips and televisions, estimated on Friday a July-September operating profit that exceeded the most bullish analyst forecasts, helped by strong profit recovery in its handset business.
Earnings at the world's biggest technology firm by revenue are set to decrease further in the fourth quarter on persistent declines in memory chip prices and as flat screens fail to show a strong rebound.
Investors are now looking for signs its telecom business can sustain its booming growth in the crucial year-end holiday season as its flagship Galaxy line of smartphones and tablets square off against Apple's new iPhone going on sale next week.
"I think Samsung's telecom business was a big positive surprise, and other businesses fared better than expected," said Ahn Seong-ho, an analyst at Hanwha Securities.
"I previously thought Apple's new iPhone would slow Samsung's handset earnings momentum, but there was no iPhone 5, and the iPhone 4S will not be a burden on Samsung in the fourth quarter."
The South Korean firm estimated its quarterly operating profit at 4.20 trillion won ($3.5 billion), compared with a consensus forecast of 3.4 trillion won by analysts surveyed by Thomson Reuters I/B/E/S. That would be down 14 percent from a year ago but up 12 percent from the preceding quarter.
The profit estimate easily topped the most bullish street estimate of 3.95 trillion won.
Samsung, the world's biggest technology firm by revenue, estimated third-quarter sales at 41.0 trillion won. The company will provide detailed earnings later this month.
Profits from its telecoms division are widely expected to top earnings from the semiconductor business at the world's biggest memory chip maker.
Expectations for further momentum in its smartphone business grew after Apple's newest iPhone left investors and Apple's fans wishing for more than a souped-up version of its previous device introduced more than a year ago.
Powered by its flagship Galaxy models running on Google's Android operating system, Samsung is seen as the most credible challenger to Apple's mobile devices.
But an intensifying legal battle with Apple over patents and designs threaten to derail its handset and component business. Apple is also Samsung's biggest customer, buying mainly chips and displays.
Samsung is widely expected to report record profit from handset sales and overtake Apple as the world's biggest smartphone vendor in unit terms in the third quarter, after selling just about 1 million fewer smartphones than Apple in the second quarter.
Smartphones may now account for one-third of Samsung's handset portfolio, up from 26 percent in the second quarter and 12 percent a year ago, lifting the profit margin of its overall handset business to around 14 percent, analysts said.
Samsung competes with Nokia, HTC and Apple in handsets, Hynix Semiconductor Inc, Elpida and Toshiba Corp in memory chips, LG Display and AU Optronics in flat screens, and Sony Corp and LG Electronics Inc in televisions.
Shares in Samsung, Asia's most valuable technology firm with a market value of around $118 billion, have dropped 5 percent over the past three months, outperforming a 21 percent drop in the wider market.
($1 = 1191.000 Korean Won)
Reporting by Miyoung Kim; Additional reporting by Hyunjoo Jin; Editing by Matt Driskill and Jonathan Hopfner