Samsung puts lid on spending for first time since financial crisis

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January 25, 2013 12:00 PM EST

Samsung Electronics Co turned cautious on spending for the first time since the global financial crisis, keeping its annual investment plan unchanged at 2012 levels, as demand for computer chips wanes and the smartphone market slows.

Samsung, one of the industry's most aggressive spenders, has ramped up capital expenditure every year since 2004 except 2009 to meet soaring demand for its array of mobile devices. It sold a record 700,000 smartphones a day in the last quarter.

But with the personal computer market shrinking for the first time in 11 years, the global smartphone market growing more slowly, and Apple Inc moving to buy fewer of Samsung's microprocessors used in the iPhone and iPad, the South Korean IT giant is now forced to keep a lid on spending.

Samsung, which posted a record October-December profit on Friday, said it would keep spending this year at a level similar to 2012, without giving details. The company said previously it planned to spend 25 trillion won ($23.39 billion) in 2012.

While the decision to keep spending unchanged defies analyst expectations of a 4-20 percent cut, rival Taiwan's TSMC by comparison is planning to raise its capital expenditure to $9 billion this year, aimed in part at winning Apple orders away from Samsung.

The South Korean company had poured money into factories to boost production of chips and panels used in Apple products and its Galaxy range products, pushing its operating profit to 8.84 trillion won in the last quarter. The 89 percent increase from a year earlier was in line with its earlier estimate.

Profit at its mobile devices division, which makes phones, tablets and cameras, more than doubled to 5.44 trillion won in the quarter from a year earlier, lifted by a broader offering of smartphones - from the very cheap to the very expensive. It is also seeing strong sales of its Note phablet, which analysts expect to help Samsung get through any seasonal weakness better than rivals.

Samsung, which doesn't provide a breakdown of smartphone sales, is estimated to have sold around 63 million smartphones in the last quarter, including 15 million Galaxy S IIIs and 7 million Note IIs.

SAMSUNG VS APPLE

Apple shipped 47.8 million iPhones in the December quarter, a record that nonetheless disappointed many analysts accustomed to years of outperformance.

Cupertino, California-based Apple missed Wall Street's revenue forecast for a third straight quarter on Wednesday as iPhone sales lagged expectations.

Apple shares have dropped by more than a third since mid-September as investors fret that its days of hyper growth are over and its devices are no longer as 'must-have' as they were.

By contrast, shares in Samsung have risen 12 percent in the same period as the company once seen as quick to copy others' ideas now sets the pace in innovation.

At the world's biggest electronics show in Las Vegas this month, Samsung unveiled a prototype phone with a flexible display that can be folded almost like paper, and a microchip with eight processing cores, creating a buzz that these may be used in the next Galaxy range.

"It's very probable to us that the Exynos 5 Octa (processor) will find its way into the Galaxy S4," UBS analyst Nicolas Gaudois wrote in a recent note.

"It also looked as if the curved display is close enough to finished product. We came away even more convinced that displays will provide significant differentiation to Samsung devices, and application processors will materially grow over time," Gaudois said. ($1 = 1066.2000 Korean won)

(Reporting by Miyoung Kim; Editing by Ryan Woo)

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