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Samsung predicts 1st profit drop in 3 years, but stock rises

Samsung Electronics Co. Launches The Galaxy Note 4 Smartphone, Gear S Smartwatch And Gear Virtual-Reality HeadsetSamsung Electronics Co. Launches The Galaxy Note 4 Smartphone, Gear S Smartwatch And Gear Virtual-Reality Headset
An employee demonstrates using a Samsung Electronics Co. Galaxy Note 4 smartphone. Photograph by SeongJoon Cho — Bloomberg/Getty Images

Samsung Electronics Co. (SSNLF) said Thursday it expects its annual profit to have fallen for the first time in three years in 2014, after being ousted by local upstart Xiaomi as the biggest smartphone maker in China.

However, its the Korean tech giant’s stock rose in Seoul, as the company’s forecast for the fourth quarter beat analysts’ expectations, fostering hopes that earnings have bottomed out in the short term.

Squeezed by Apple Inc. (AAPL) at the top end of the smartphone market and by Xiaomi at the budget end, Samsung said it expects an operating profit of around 25 trillion won ($22.8 billion) for 2014. That reflects a rebound in the fourth-quarter to 5.2 trillion won from 4.1 trillion in the period between July and September, driven in part by the roll-out of its new Galaxy Note 4 smartphones.

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Analysts had expected the fourth-quarter profit to be only 5 trillion won, according to a forecast by Reuters.

Samsung’s shares peaked in early 2013 and fell as much as 25% through 2014 as it lost market share in key countries such as China. However, the shares have recovered about a third of that since November as the company started announcing measures to regain investors’ confidence.

It has trimmed its range of smartphone products, agreed to sell its fiber optics division to Corning Inc. (GLW) and announced big investments in memory chips, an area where it still enjoys solid market share and profit margins.

In December, it also dangled the prospect of a dividend increase of between 30% and 50%. That is expected to be confirmed at the end of January.