Samsung Electronics Co's third-quarter profit tumbled 75 percent as its memory chip business, the world's largest, had a loss, with prices falling to half the cost of production.
Net income in the three months ended September dropped to 420 billion won (US$323 million) from 1.7 trillion won a year earlier.
The chip business had a 380 billion won operating loss, compared with a 300 billion won profit in the previous quarter.
Rival chipmakers Micron Technologies Inc and Hynix Semiconductor Inc. posted losses for the past two quarters as computer and phone companies cut spending and the global economy slowed. Samsung is profitable thanks to its telecommunications business, which accounts for a third of sales.
"Recovery in the semiconductor industry will take a long time," said Lee Joon-hee, who manages 300 billion won at Dongwong BNP Investment Trust Management Co in Seoul. "The general consensus is that a recovery won't occur until the second half of next year."
The company's telecommunications unit, which sells mobile phones and networking equipment, increased operating profit 20 percent from the previous quarter to 360 billion won. Samsung is the fourth-largest mobile-phone maker.
Samsung shares fell 500 won or 0.3 percent to 169,500 won after earlier falling as much as 2.1 percent. The stock has risen 7 percent since the beginning of the year, almost double the gain for the benchmark KOSPI.
Samsung will reduce spending on its chip business by about 10 percent to 4 trillion won, its third cut this year, Vice President of Investor Relations Chu Woo-sik said on a conference call with analysts and investors. The company won't cut chip production to try and boost prices, he said.
Samsung and its main rival Micron, which between them hold about 40 percent of the market, have repeatedly said they will not reduce production to try to redress the balance between supply and demand.
This led analysts to speculate that they have decided to maintain output at current levels to force one of their financially weaker rivals out of the industry.
Hynix, the third-largest maker, is trying to find buyers for its facilities as it waits for a decision from creditors on whether they will provide it with a second bailout in less than four months.
The company said Friday it lost 1.6 trillion won in the third quarter this year to 3.7 trillion won.
Makers of dynamic random-access memory chips, which provide the main memory for personal computers, spend billions of dollars each year upgrading technology to try to squeeze more chips out of the same piece of silicon by reducing the gap between circuits on a chip. Success is determined by fractions of the width of a hair as companies sell millions of the chips each month.
Worldwide DRAM sales may fall 67 percent by value this year as the global economy slows and consumer confidence was hurt by last month's terrorist attacks, said Dataquest Inc, a research firm. The spot market price of DRAM chips has fallen 78 percent this year.
"The rate at which prices are falling may slow in the fourth quarter," Chu said. The company forecast that increasing sales of more profitable products such as Rambus Inc-designed chips may help limit losses.
Samsung officials from the company's semiconductor division said on the conference call that supply and demand will not reach balance until the third quarter of next year unless a rival company leaves the industry.
Samsung forecast worldwide sales of mobile phones will increase to about 410 million units next year from 390 million this year.
The company increased profit margins on its mobile phones by introducing improved displays and the ability to access the Internet at higher speeds over existing networks. These "2.5 G" phones sell for an average of 50 percent more than current models, it said.
"Next quarter numbers are going to have to be revised up a little bit based on the very good margins the company has on new products such as the handsets," said Keon Han, an electronics analysts at Bear Stearns Asia, in Hong Kong.
Overall, third-quarter sales fell to 7.2 trillion won from 8.8 trillion won last year. Sales in the second quarter totaled 8.6 trillion won.
The company said net income received a boost from a tax rebate and from earnings from affiliated companies such as Samsung SDI Co.
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