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Samsung Elec Q1 profit slumps

Samsung Electronics Co Ltd posted a bigger-than-expected 25 per cent slump in quarterly operating profit.

india Updated: Apr 14, 2006 16:21 IST
Reuters
Reuters
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Samsung Electronics Co Ltd posted a bigger-than-expected 25 per cent slump in quarterly operating profit on Friday, hit by sliding margins in mobile phones and memory chips.

The outlook for the current quarter is grim as prices for flash memory chips, popular in hot-selling digital cameras and music players, are likely to fall further before recovering in the second half on seasonal demand.

But shares gained 2 per cent after the company announced it would buy back 1.86 trillion won ($1.94 billion) worth of stocks.

"The second quarter will be so-so, but earnings from the second half are expected to get better on improvements in display and chip divisions", said Kim Seong-ki, chief investment officer at SH investment trust management.

The world's top maker of memory chips saw its NAND-type flash memory chip prices tumble 25 per cent in the first quarter.

Samsung, which is also the third-largest maker of mobile phones after Nokia and Motorola, posted record handset sales in the first quarter but saw margins fall sharply from the previous year.

A surge in the Korean won , which was 4.5 per cent higher against the dollar than a year ago in the first quarter, also hurt Samsung's bottom line.

Samsung earned 1.61 trillion won in operating profit for the quarter ended March 31, against 2.15 trillion a year ago. It missed a 1.79 trillion profit forecast by 12 analysts.

But net profit rose to 1.88 trillion won from 1.5 trillion due to a 700 billion won write-down to support its credit card affiliate, Samsung Card, in the first quarter of last year.

Booming demand for flash memory chips, used in products like Apple Computer Inc's iPod, led Samsung to a 40 per cent jump in profits in the fourth quarter. But NAND chip prices have slumped since January as extra supplies poured in while consumer demand cooled off.

Shares in Samsung, the country's biggest stock with a market value of $97.5 billion, were up 2.19 per cent at 652,000 won at 0233 GMT, leading a 1.17 per cent gain in the main index.

Sliding margins

Samsung said it expected NAND demand to improve in the second quarter after the price declines. The firm also announced a $220 million investment to build a chip plant in the United States.

The company said its margins in the memory chip division fell to 26 per cent in the first quarter from 31 per cent a year ago.

Samsung said it expected a "balanced" outlook for supply and demand of dynamic random access memory (DRAM) for 2006, and a smaller-than-expected 24 per cent fall in DRAM prices this year.

On cell phones, the company took the full brunt of the won's appreciation and higher-than-expected marketing costs. Samsung derives more than two-thirds of its sales from exports.

Samsung sold record 29 million handsets in the first quarter, close to the 29.5 million it had earlier forecast. The number followed the fourth quarter's 27.2 million. Profit margins in the handset division in the first quarter were 10 per cent, down from 17 per cent a year ago but up from 8 percent in the fourth quarter.

The display business at Samsung, the number two maker of large liquid crystal display (LCD) panels worldwide, was squeezed by aggressive discounting by retailers, a collapse in computer monitor prices and costs linked to the start-up of a new panel production line.

The company said profit margins at the LCD division edged up to 4 per cent in the first quarter from 1.2 per cent a year ago, but down from 13 per cent in the fourth quarter.

LG.Philips, which reported profits on Tuesday, swung to a profit in the first quarter on growing sales of TV panels, but said it expected margins to drop over the next quarter due to sliding panel prices.

LCD makers are rushing into joint investment plans and seeking tie-ups to survive margin-crushing competition.

Samsung and Japan's Sony Corp announced on Monday a $2 billion expansion of a joint LCD plant. Taiwan's AU Optronics, the third-biggest LCD maker, also said on Friday it would acquire smaller local rival Quanta Display Inc. to compete with leading Korean makers.

The stock fell 4.4 per cent in the first quarter, trailing the broader market's 1.4 per cent fall.

First Published: Apr 14, 2006 10:56 IST