Booming demand for smartphones and tablets will help Samsung Electronics Co post better results this year after the world's No.2 mobile phone maker reported its weakest profit in six quarters.

The South Korean firm has emerged as a credible challenger to Apple in mobile devices while also grabbing market share from Nokia and Research In Motion with its Galaxy smartphones.

Samsung is moving in the right direction into smartphones and tablets. Rising competition is a concern but the pie is also growing, said Cha Kyung-jin, a fund manager at Golden Bridge Asset Management, which owns Samsung shares.

Samsung will be able to comfortably position itself in the market. And improving momentum in chips and flatscreens will further consolidate its position in the global technology industry.

The smartphone market is set to grow 44 percent this year, while the tablet market is likely to more than double to 55 million units in 2011, according to industry data.

Samsung's cyclical memory chips business is also set to rebound after prices likely bottomed out in the first quarter, analysts said.

The world's top maker of flatscreens and televisions reported 3.0 trillion won ($2.7 billion) in operating profit for the October-December period, missing a consensus forecast of 3.4 trillion won in profit as polled by Thomson Reuters I/B/E/S.

But this was in line with Samsung's forecast of operating profit between 2.8 trillion and 3.2 trillion won. The result compares with a 4.9 trillion won profit in the preceding quarter and 3.4 trillion won a year earlier.

On Thursday, Nokia, the world's biggest cellphone maker, warned of a grim start to 2011 after rivals such as Samsung ate into its market share. Sony Corp is also betting on new products to fend off competition from the likes of Samsung.

Shares in Samsung, whose $145 billion market capitalization is bigger than the combined value of Sony, Nokia, Toshiba and Panasonic Corp, gained as much as 1.4 percent to a record on Friday.

Samsung shares have risen by a third in the last three months, beating a 10 percent gain in the KOSPI.

STRONG RECOVERY IN SMARTPHONES

Profits from Samsung's telecom division accounted for nearly half its total profit in the October-December quarter, helping offset the impact of a sharp profit drop in flatscreens and chips, which were the major earnings contributors for last year's record profit.

Samsung has sold around 10 million Galaxy S smartphones, powered by Google's Android platform, since its June debut, and 2 million Galaxy tablets in the past three months.

It still has a long way to catch up with Apple, which sold more than 7 million iPads and 16.2 million iPhones last quarter alone. Apple says it is unable to build enough iPhones to meet demand.

Samsung's smartphones are doing well, but due to a variety of its models, manufacturing costs will be high compared to Apple, which has fewer models, said Shin Jin-Ho, head of equity at Midas Asset Management, which holds Samsung shares.

The shares will probably extend gains through the first half of this year due to strength in memory chip momentum. But the likely slowdown in the recovery in the second half could impact shares.

Samsung competes with Sony and LG Electronics Inc in TVs and Toshiba and Hynix in semiconductors.

($1=1114.3 Won)

(Additional reporting by Hyunjoo Jin, Ju-min Park and Jungyoun Park and Clare Jim in TAIPEI; Editing by Anshuman Daga and Dean Yates)

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