Samsung - Samsung profit slumps 25 percent

Samsung profit slumps 25 percent

SEOUL (Reuters) - Samsung Electronics (KSE:005930.KS - News) posted a bigger-than-expected 25 percent 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 2.7 percent after the firm said 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 percent in the first quarter.
Samsung, the third-largest maker of mobile phones after Nokia (NOK1V.HE) and Motorola (NYSE:MOT - News), posted record handset sales in the first quarter but saw margins fall sharply from a year ago.
A surge in the Korean won (KRW=), which was 4.5 percent 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, against 2.15 trillion a year ago. It missed a 1.79 trillion profit forecast by 12 analysts surveyed by Reuters.
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 (NasdaqNM:AAPL - News) iPod, led Samsung to a 40 percent jump in fourth-quarter profit. But NAND chip prices have slumped since January as extra supplies pour in while demand cools off.
Shares in Samsung, the country's biggest stock with a market value of $100 billion, ended 2.7 percent higher at 655,000 won, leading a 1.92 percent gain in the main index
(KSE:^KS11 - News).
SLIDING MARGINS
Samsung said its margins in the memory chip division fell to 26 percent in the first quarter from 31 percent a year ago, but it saw NAND demand improving in the second quarter.
Prices of dynamic random access memory (DRAM) chips, used mostly in personal computers, should post a smaller-than-expected 24 percent fall this year, it said.
Samsung also said it would invest $220 million to build an additional chip production line using 12-inch wafers at its plant in the United States.
On cell phones, the company took the full brunt of the won's appreciation and higher-than-expected marketing costs. Samsung derives more than 80 percent 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 percent, up from 8 percent in the fourth but down sharply on 17 percent a year ago.
"I'm concerned about whether Samsung is losing its competitiveness across sectors, especially in handsets," said Kim Yung-min, equity strategist at Korea Investment Trust Management.
Samsung expects handset division margins to be in the double digits throughout 2006, helped by upcoming new slim-phone models.
It forecast global handset demand rising 13 percent to 910 million units in 2006, higher than previous forecasts, led by demand from emerging markets.
DISPLAY WOES
The display business at Samsung, the No.2 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 new production lines.
Profit margins at the LCD division edged up to 4 percent in the first quarter from 1.2 percent a year ago, but down from 13 percent in the fourth quarter.
Samsung also cautioned that LCD prices may fall more sharply in 2006 than the previously forecast 10 to 15 percent drop.
LCD makers are rushing into joint investment plans and seeking tie-ups to survive margin-crushing competition.
Samsung and Japan's Sony Corp. (Tokyo:6758.T - News) announced on Monday a $2 billion expansion of a joint LCD plant. Taiwan's AU Optronics (Taiwan:2409.TW - News) is also acquiring rival Quanta Display Inc.
(Taiwan:3012.TW - News).
Samsung's shares fell 4.4 percent in the first quarter, trailing the broader market's 1.4 percent fall.
($1=961.0 Won)