Samsung sees tough chip, LCD outlook after strong Q3
Samsung Electronics Co, the world's top maker of memory chips, hopes surging smartphone sales can offset slumping demand for chips and screens but analysts still expect profits to drop by 25 percent in the current quarter.business Updated: Oct 29, 2010 12:11 IST
Samsung Electronics Co, the world's top maker of memory chips, hopes surging smartphone sales can offset slumping demand for chips and screens but analysts still expect profits to drop by 25 percent in the current quarter.
After beating estimates with two consecutive quarters of record profits in the first half, the world's top producer of TVs and flat screens and the No.2 maker of mobile phones is bracing for a challenging outlook on all fronts.
Growing price competition in TVs will hit margins ahead of Christmas and LCD flat screen division may report losses due to faltering demand from TVs and plunging prices, analysts said.
Prices of Samsung's bread-and-butter memory chips are also falling rapidly on weak consumer demand for computers.
"A slowdown in the memory chip sector is ahead as DRAM prices are set to fall, probably through the first quarter of next year," said Hwang Yoo-shik, an analyst at SK Securities.
"But new devices such as the tablet PC could be Samsung's next big thing and may help offset a slowdown in other businesses ... I expect Samsung's earnings to pick up from the first quarter of next year."
Shares in Samsung, Asia's most valuable technology firm with a market value of $112 billion, fell 2.4 percent by 0455 GMT. The stock has dropped 5 percent so far this year, lagging a 14 percent gain in the wider market.
BETTING ON MOBILE AS LCD, CHIPS DOWN
Samsung trails Nokia in mobile phones and competes with Sony Corp and LG Electronics in TVs and Toshiba and Hynix in semiconductors.
Its smartphone business, a major drag in the first half, is recovering fast to take on heavyweights such as Apple and Research In Motion with its Galaxy S phone, powered by Google's Android operating system.
The portion of smartphones rose to 11 percent of its total handset shipments up from 2 percent a year ago. Helped by the Galaxy and Wave smartphones, Samsung also closed a gap with Nokia to just 12 points in the handset market last quarter.
"Samsung commenced its smartphone onslaught with the Galaxy S in Q3 and a tablet onslaught with the Galaxy Tab will begin next in Q4," research firm Strategy Analytics said on Friday.
Samsung recently unveiled the 7-inch Galaxy Tab, which analysts see as the strongest rival to Apple's 9.7-inch iPad, though Apple CEO Steve Jobs said this month that seven-inch-screen tablets would be "dead-on-arrival".
Samsung estimated on Friday its tablet sales would reach more than 6 million units next year in a 50-million-unit market.
But supplies of components such as advanced displays are failing to keep up with explosive growth of smartphones and may put pressure on Samsung's volume increase.
In the chip business, growing supply and stalled demand growth have brought a quick end to the sector's one-year boom and will push the industry back into an oversupply cycle at least until the first half of next year, analysts warn.
Ahead of the quarterly results, Samsung was forecast to report a 25 percent drop in fourth quarter operating profit from the preceding quarter, according to a survey of 12 analysts.
"Samsung expects oversupply in the memory semiconductor market will lead to reduced pricing, while prices for LCD panels will continue to decline," the firm said in a statement and also warned that a stronger Korean won would also hurt earnings in the fourth quarter.
Samsung reported on Friday a 4.9 trillion won ($4.36 billion) operating profit for the July-September quarter, matching the consensus forecast by 12 analysts polled by Reuters.
Earlier this month, Samsung said it would post an operating profit between 4.6 trillion and 5.0 trillion won.
The results were a improvement from a 4.2 trillion won profit a year earlier thanks to strong sales of smartphones and chips, but were down 3 percent from a record 5.0 trillion won reported in the second quarter as the company was hit by plunging prices of flat panels.
Sales rose 12 percent to a record 40.2 trillion won, spurred by higher revenue from chips, which generated a record 3.4 trillion won profit to account for 70 percent of Samsung's total profit. Net profit rose 17 percent to a record 4.46 trillion won.
Its TV division swung to a 230 billion won loss, hit by price competition, as producers grappled with growing stockpiles on weaker-than-expected demand in the U.S. and the European market.
"Samsung's TV unit is likely to remain in the red in the fourth quarter because of competition and price drops," said Greg Noh, an analyst at HMC Investment Securities.