Samsung posts weak second quarter profit

SALES DOWN: The South Korean firm announced its poorest figures in three years although analysts said that prospects for the second half of the year were better


Sat, Jul 15, 2006 - Page 10

Samsung Electronics, South Korea's high-tech giant, yesterday posted its lowest quarterly profit in three years due to a strong won and weaker sales in its microchip, display panel and handset operations.

The world's largest memory-chip maker said that its second quarter net profit stood at 1.51 trillion won (US$1.58 billion), down 10.7 percent from a year ago and down 20.1 percent from the previous quarter.

Operating profit fell 14 percent year-on-year and was down 11.8 percent from the three months to March at 1.42 trillion won although this was still enough to beat market forecasts for 1.2-1.3 trillion won.

The figures were the weakest since the second quarter of 2003, when the company posted a 1.16 trillion won operating profit.

Sales were up 3.8 percent year-on-year and 1 percent quarter-on-quarter to 14.11 trillion won, again beating market estimates for 13.83 trillion won.

"During the second quarter, many companies in the industry faced difficulties due to declining prices in mainstay products," senior vice president Chu Woo-sik said.

Samsung has been hit by price falls in major product lines and a strong won, which dampens exports, but it painted a positive picture about its performance in the second half of the year, citing stable liquid-crystal display (LCD) prices, higher handset sales and a tighter supply of chips.

Analysts said Samsung provided clear guidance into the second half, projecting stronger seasonal demand for chips, displays and handsets despite concern over high oil prices and a possible global economic slowdown.

"Samsung may enjoy a sharp upturn in the third quarter as prices of major IT products are expected to stabilize," said Korea Investment Securities analyst Michael Min.

Hannuri Securities' Ahn Sung-ho said Samsung showed confidence over the second half.

"NAND flash chips are a concern but unless Apple misses its timeline for a new iPod product this September, Samsung will be able to enjoy stable demand," he said.

Samsung is a major supplier of these key chips used hugely popular portable digital music players and phones.

In the three months to last month, Samsung's handset sales fell four percent from a year ago to 4.04 trillion won as stiff competition led to sharp price cuts although the company enjoyed brisk sales in its microchip and LCD operations.

The LCD division posted 2.85 trillion won in revenue in the second quarter, up six percent from the previous quarter but its operating profit fell 30.6 percent to 70 billion won.

Samsung's LCD business was hit hard by price declines but the company predicted they would be stabilizing as many manufacturers began to cut output.

Also yesterday, Samsung signed a 1.9 billion dollar contract with Japan's Sony to build a new joint venture production line for large LCD panels.

The joint venture currently makes 40-inch LCD panels, used in televisions. Its new LCD line will have a monthly capacity of 50,000 panels.

The deal comes amid growing competition among major LCD makers for the world's fast-growing large flat panel market which has been dominated by Samsung and rival LG Philips, a Dutch-South Korean joint venture.

LG Philips reported a record net loss of 322 billion won in the second quarter, highlighting the competitive pressures on the industry which has seen a huge ramp up in capacity in recent years.

Meanwhile, Samsung said it will invest US$200 million to form a venture with Siltronic AG to make chip wafers.

The Singapore-based venture will be named Samsung Electronics Asia Holding, Samsung said in a regulatory filing in Seoul yesterday.

Samsung and Germany's Siltronic will each own half of the venture, the statement said.