Samsung Profit Falls

Samsung Profit Falls Most in 3 Years on Chips, LCDs

Bloomberg (24/10) said that Samsung Electronics Co., Asia's largest maker of chips, flat screens and mobile phones, posted its biggest profit drop in more than three years as oversupply drove down prices of semiconductors and displays.

Samsung shares fell as much as 5.2 percent after the Suwon, South Korea-based company reported third-quarter net income declined 44 percent to 1.22 trillion won ($863 million), from 2.19 trillion won a year earlier.

The company cut its chip spending plans after earnings at the division tumbled 74 percent and forecast slowing demand for liquid-crystal displays this quarter. Samsung, whose shares are trading at a three-year low, joins Sony Corp. among electronics makers reporting lower earnings this week as the credit crisis threatens to send the global economy into a recession.

Choi Min Jai, who counts Samsung shares amid the $2 billion he helps look after at KTB Asset Management Co. in Seoul said that Samsung was affected by all the possible impacts from the global economic slowdown. ``It's inevitable that Samsung's growth will slow down for a while to come.''  Samsung fell 4.9 percent to 449,500 won at 11:25 a.m. on the Korea Exchange, while the benchmark Kospi index dropped 5 percent.

Net income was in line with the 1.27 trillion won median estimate of 19 analysts surveyed by Bloomberg. Revenue and operating profit exceeded analyst estimates as the falling won, the worst performing major Asian currency this year, helped boost the value of Samsung's overseas sales.

Chip Profit Slumps

"Most electronics makers will see difficult times, but Samsung will be a relatively safer bet,'' said Baik Jae Yer, a fund manager at Seoul-based Korea Investment Trust Management Co., which oversees $5.6 billion in stocks. But a weaker won will give Samsung an advantage over Japanese rivals such as Sony.

Profit from semiconductors slumped 74 percent to about 240 billion won as oversupply drove down prices of memory chips used in computers and consumer electronics. Samsung, the world's second-largest chipmaker after Intel Corp., was projected to post 145 billion won in profit on revenue of 4.89 trillion won at the division, according to the Bloomberg survey.

Japan's Elpida Memory Inc., Powerchip Semiconductor Corp. and Nanya Technology Corp. have reported losses this month after prices of the benchmark dynamic random access memory chip tumbled 39 percent in the quarter ended Sept. 30 to record lows. Prices of NAND flash memory, used to store songs and pictures in electronics, have slumped 55 percent this year, according to Taipei-based Dramexchange Technology Inc.

Chip Consolidation

Falling prices may spur consolidation, Peter Yu, an analyst at BNP Paribas SA, wrote in a report last week. Micron Technology Inc., the largest U.S. memory-chip maker, on Oct. 13 agreed to buy a 35.6 percent stake in Inotera Memories Inc. from Qimonda AG for $400 million.

Profit from liquid-crystal displays, which accounted for a third of Samsung's operating income last year, declined 44 percent to about 380 billion won during the quarter, compared with the 323 billion won median estimate in the Bloomberg survey. The world's largest LCD maker reported revenue at the division climbed 20 percent to 4.81 trillion won.

Samsung joined LG Display Co., the second-largest LCD maker, in reporting its first profit decline from displays since the first quarter of 2007, as weaker demand and overproduction, spurred by record earnings last year, drove down prices in the $89 billion industry.

Weaker Demand

LG Display last week trimmed its planned spending for this year by 9 percent to 4.1 trillion won and said investment will fall further to as low as 1.5 trillion won in 2009. LG Display, Taiwan's AU Optronics Corp. and Chi Mei Optoelectronics Corp. cut production in the third quarter to counter oversupply as flagging consumer confidence undermine sales of electronics including computers and televisions.

Earnings from telecommunications, including mobile phones, fell 15 percent to about 500 billion won, missing the 555 billion won median estimate in the Bloomberg survey. Sales increased 26 percent to 6.85 trillion won as handset shipments climbed 22 percent to 51.8 million phones. The profit margin from mobile phones will probably fall below 10 percent in the fourth quarter as the company increases marketing expenses, according to Robert Lea, an analyst at UBS.

Market leader Nokia Oyj last week posted a 30 percent slide in third-quarter profit as prices fell and it lost market share in high-end phones. Samsung's smaller rivals LG Electronics Inc. and Sony Ericsson Mobile Communications Ltd. reported handset earnings that exceeded analyst estimates in the past week. ***