Array

Seoul, Jul 14: Samsung Electronics Co. Ltd. reported an 11 percent drop in its quarterly profit on Friday, hurt by shrinking margins in mobile phones and flat screens, but it forecast a recovery across its businesses in the second half.

Samsung, the world's top memory chip maker and the third biggest handset producer, expects flat screen prices to stabilise with sales picking up, mobile phone demand to improve thanks to new, ultra-slim phones and memory chip shipments to rise.

''For the second half, the outlook for NAND and DRAM chips looks better,'' said Choi Yong-kyu, a fund manager at IBK SG Asset Management. ''LCDs are going to recover, but only by the fourth quarter, while handset margins are going to improve steadily.'' The company said the chip sector would improve markedly, with prices of NAND flash memory chips, used in digital cameras and music players, dropping by only a single-digit percentage in the third quarter after a 32 percent tumble in the second quarter.

Fierce competition with market leaders Nokia and Motorola in mobile phones, plus a supply glut in liquid crystal displays (LCDs), have taken their toll on the most valuable technology company outside the United States.

Samsung posted 1.51 trillion won ($1.59 billion) in net profit for the quarter ended June 30, compared with 1.69 trillion won a year earlier and 1.88 trillion in the previous quarter.

The result was slightly below the 1.58 trillion won forecast by 10 analysts surveyed by Reuters.

Shares in Samsung Electronics, the country's biggest stock worth $93 billion, were down 2.5 percent at 585,000 won at 0403 GMT, in line with the wider market's 2.7 percent drop.

Separately, Samsung was named in a lawsuit filed by New York Attorney General Eliot Spitzer on Thursday alleging several chip makers violated antitrust laws in a conspiracy to fix prices for dynamic random access memory (DRAM) chips from 1998 through June 2002.

Samsung expected the lawsuit to be ''resolved smoothly'', and had provisioned for such lawsuits, according to Chu Woo-sik, the senior vice president of Samsung's IR team.

HANDSETS TO RECOVER

In the mobile phones division, Samsung saw its profit margin drop to 9.5 percent in the second quarter from 12 percent a year earlier.

Its market share has been hit by the runaway success of Motorola's clamshell RAZR phone and handset shipments came in at 26.3 million in the second quarter, down from 29 million in the first.

''Given seasonal demand in the second half and the rising 3G market, we expect handset demand to rise in the second half from the first,'' the company said in its earnings statement.

Kim Yung-min, an equity strategist at Korea Investment Trust Management, agreed: ''I'm more positive on handsets.

Samsung is introducing new models in the second half, and I think they will be able to challenge Motorola and regain some of their competitiveness.'' Samsung, the world's second-biggest maker of large LCD panels last year behind LG.Philips LCD, saw its display unit squeezed by aggressive discounting and lacklustre sales for the soccer World Cup. It posted a margin of 2.6 percent for the quarter, down from the first quarter's 4 percent.

Samsung's second-quarter earnings were buttressed by a steady performance in its chips unit, with a 22.2 percent profit margin.

The company expects a supply shortage in DRAM chips and demand in NAND flash memory chips to rise on release of new products.

Flash shipments are expected to grow by more than 35 percent in the third quarter after rising only 17 percent in the second, the company said.

Stronger demand for personal computers later in the year and solid demand for chips used in game consoles will lead DRAM demand, Samsung said.

Samsung's sales stood at 14.11 trillion won in the second quarter against 13.59 trillion a year earlier. For 2006, Samsung, the most valuable technology firm outside the United States, is set to earn a 7.79 trillion net profit, slightly higher than 7.64 trillion in 2005, Reuters Estimates showed. That implies a 4.40 trillion won net profit for the second half after 3.39 trillion in the first.

Samsung shares fell 4.3 percent in the second quarter, in line with a 4.7 percent drop in the wider market.

($1=948.9 Won)

REUTERS