Samsung posts weak Q1 on chips, outlook tough

By Staff
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Seoul, Apr 13: Samsung Electronics Co. Ltd., the world's top memory chip maker, posted a slightly bigger-than-expected 15 percent drop in first-quarter earnings as margins tumbled, and predicted more price pressure to come.

The April-June outlook remains grim as Samsung, the most valuable technology company outside the United States, forecast a further 5-10 percent drop in DRAM (dynamic random access memory) prices over the second quarter.

But it said the second quarter would represent a bottom for DRAM profitability, and analysts expect Samsung's earnings to improve in the second half as seasonal demand for consumer electronics picks up.

''The strength of an expected rebound later in the year still depend on the strength of the demand stemming from Windows Vista during the holiday shopping season near the year-end,'' said Seo Jung-ho, fund manager at Daehan Investment Trust Management.

The weak result at the chips unit overshadowed a recovery in the company's mobile phone business driven by a new focus on medium- and lower-end models. Samsung is the world's third-largest maker of mobile phones after Nokia and Motorola .

Stronger-than-expected demand for DRAM chips last year prompted manufacturers to switch more capacity to DRAM from NAND flash, leading to oversupply, while demand linked to Microsoft's new Vista operating system has been sluggish.

Samsung posted January-March net profit of 1.6 trillion won ($1.72 billion), down from 1.88 trillion won a year earlier -- and its lowest quarterly net since the first quarter of 2005.

Operating profit was 1.18 trillion won, the lowest since the second quarter of 2003.

Shares in Samsung, South Korea's biggest stock with a market value of $94 billion, closed 0.5 percent lower at 601,000 won, erasing early gains as investors reacted to the poor operating profit, compared with the broader market's <.ks11> 0.3 percent fall. The stock fell 8.2 percent in the first quarter.

For 2007, Samsung's net profit is forecast at 7.84 trillion won, down from 7.93 trillion earned in 2006, according to analysts surveyed by Reuters Estimates.

January-March operating margins on chips slumped to 12 percent from 31 percent in the previous quarter and 26 percent a year earlier. The division's operating profit fell 52 percent from a year ago and 67 percent from the prior quarter.

''DRAM and NAND prices fell so sharply that they offset our cost reduction efforts,'' Lee Keon-hyok, Samsung's vice president of investor relations, said in a conference call on Friday.

Prices for NAND flash chips, widely used in portable electronic gadgets, should rise 20-25 percent in April-June after falling more than 40 percent in the first quarter, Samsung said.

Samsung expects DRAM chip prices this year to fall by a high 30s percent, while flash chip prices could dop by more than half.

For more earnings details, see the company's Web site at: http://www.sec.co.kr/images/corp/ir/irevent/20070413tconference callteng.pdf ENCOURAGING HANDSET RECOVERY Samsung sold a record 34.8 million mobile phones in the first quarter, helped by stronger sales of lower-end models in China and other new markets.

Mobile phone margins rose to 13 percent from a revised 7 percent in the fourth quarter, though average selling prices fell by 8 percent.

Samsung's recovery contrasts with Motorola, which last month warned of a quarterly loss as it struggles to hold on to market share it won with the success of its blockbuster RAZR model.

The world's biggest maker of large liquid crystal display (LCD) panels was also hurt by low seasonal demand and weaker-than-expected shipments of monitor screens. Margins slid to 3 percent from 10 percent in the fourth quarter.

LCD panel makers such as Samsung and LG.Philips , and Taiwan's AU Optronics and Chi Mei Optoelectronics have struggled in recent quarters amid an industry glut that saw prices drop steadily since last year.

Samsung raised its forecast for 2007 global LCD TV sales and expects the LCD market to tighten, or even show a shortage, through 2008.


Reuters

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