Samsung Electronics surprised financial analysts this week by posting its first profitable quarter since last year. The company's third quarter sales grew by 9.6 percent to $18.16 billion from one year ago, with earnings rising by 1 percent to $2.4 billion.

Samsung's improved financial performance was driven in part by spectacular sales in the company's mobile phone business. The company said it shipped 42.6 million mobile phones in the third quarter -- up by 14 percent from the prior period and a 47 percent increase over the year-earlier quarter.

"In Western Europe and North America there is no doubt that Samsung has been taking advantage of Motorola's problems," noted Gartner research director Carolina Milanesi. Moreover, the company continues to benefit from the popularity of its Ultra Edition handsets and from some aggressive pricing strategy in regions such as the Asia-Pacific, she said.

Growing by 40 Percent

During the first three quarters of 2007, Samsung sold 115 million mobile phones, which exceeds the 114 million handsets that the company sold in all of 2006. And in the latest quarter, Samsung's handset business posted quarterly unit sales growth in excess of 40 percent, exceeding the market growth overall quite significantly.

"We'll see over the next few days when other manufacturers announce their numbers just what that translates to in market share," explained David Steel, Samsung's telecom business unit vice president.

However, it remains to be seen whether Samsung's strong sales into the channel will be mirrored by a strong sell-through to handset customers, Milanesi explained. "It might well be that in Western Europe and North America some inventory has been created in order to prepare for Christmas."

Due to an increase in sales of the company's U600 and the U700 Ultra Edition 2 products, as well as other 3G products, the average selling price of Samsung's mobile phones increased to $151. The operating profit margin at Samsung's handset business weighed in at 11.6 percent -- an increase of almost 4 percent over the second quarter.

Managing the Mix

With respect to the current quarter, Samsung anticipates that its mobile-phone shipments and revenues will continue to rise. Due to typical seasonality issues as well as the strong growth in emerging markets such as India and China, the global market is expected to grow more than 10 percent in the current quarter, Steel said.

Samsung has not yet made a play for the low end of the market, where much of the growth in emerging markets is occurring. However, Steel noted that growth has been so strong in emerging markets of late that Samsung had started to see some replacement demand.

Going forward, Samsung intends to increase its sales of Ultra Edition 2 phones by way of WCDMA and HSPPA offerings that target the emerging 3G market. Steel indicated that the company intends to lead in development of new products for the high-end multimedia market.

"We are actively managing our product mix in order to keep profitability up as high as possible while still really following the growth in the market," Steel explained. "For the year as a whole we are maintaining a midterm operating profit ratio guidance of double digits," Steel added.