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April 17, 2005

Samsung adds to tech gloom as profit slides

Samsung Electronics has added to the gloom surrounding the tech industry after posting a larger-than-expected profit fall, as it struggles with lower prices of chips and liquid-crystal displays.

By CBR Staff Writer

For the first quarter ending March 31, the conglomerate reported a 52% decrease in net profit to KRW 1.50 trillion ($1.46bn) from KRW 3.14 trillion ($3.07bn) in the year-ago quarter. This 52% decline was the biggest year-on-year drop in more than three years, and worse than analysts had feared.

The decreased profit was partly down to a KRW 700bn ($684m) charge in the quarter from its Samsung Card unit. Samsung is also being hurt by the strong Korean won and weak US dollar. The won has risen almost 20% against the US dollar since the start of 2004. Samsung is South Korea’s top exporter and 83% of its sales in 2004 were generated overseas.

Meanwhile, sales for the quarter slid 4.2% to KRW 18.81 trillion ($13.50bn) from KRW 14.41 trillion ($14.09bn). This is the first year-on-year sales fall in seven quarters, and again missed the KRW 14.25 trillion ($13.93bn) expected by analysts.

The slowing results at Samsung have compounded concerns about the recovery of the IT industry as it enters the first quarter earning session amid a slew of profit warnings. IBM and Sun Microsystems have already reported earnings that missed analysts’ estimates.

After Intel, Samsung is the world’s second biggest chipmaker. Operating profit from its semiconductor unit fell 22% to KRW 1.39 trillion ($1.36bn) as the oversupply of DRAM chips drove down first-quarter average prices to below $5 each from about $6 a year earlier. Sales however rose 9% to KRW 4.48 trillion ($4.38bn) from a year ago, but looking forward, the company warned the oversupply of DRAM would continue into the second quarter.

Samsung is also the world’s largest LCD maker, but operating profit from the LCD unit plunged 97% to KRW 23bn ($225m) as a glut of flat screens drove down prices. Sales were down 20% at KRW 1.90 trillion ($1.86bn).

Samsung is not alone here. Its nearest rival in the flat panel sector, LG Philips LCD, reported last week a first quarterly loss in nearly two years following a 41% fall in prices. Looking forward to the rest of the year however, Samsung has raised its global shipment forecast for LCDs measuring at least 10 inches diagonally to 177 million units from the January forecast of 168 million units.

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Samsung said its shipments of so-called large-area flat panels in the second quarter will increase 9% from the first quarter to 9.6 million units. It must certainly hope that this is the case because it has a chunk of extra manufacturing capacity coming online when its seventh-generation LCD plant starts production at the end of September. This plant is so advanced it can reportedly produce screens the size of a double bed, and can make approximately 60,000 panels a month.

The third major division of Samsung is its mobile handset unit. Samsung is now the world’s third largest handset maker after Nokia and Motorola. Operating profit in this unit was down 33% at KRW 840bn ($821m) on steady sales of KRW 4.84 trillion ($4.73bn). Samsung blamed the decline in operating profits on the continuing price cuts by market leader Nokia.

Despite this, Samsung shifted a record amount of mobile handsets during the first quarter, with 24.5 million sold. This was dramatically up from the 21.1 million units it sold in the final three quarters in 2004.

The surge is sales here was mainly thanks to the popularity of its slide-up design D500 handset, with 3.1 million units sold. During the second quarter, Samsung expects mobile handset shipments (which sold at an average of $182 apiece) to be similar to the first quarter.

The strong performance of its handset division has prompted the company to raise its forecast for global handset shipments to 700 million units, up from an earlier projection for 670 million. The company however stuck to its own shipment target of 100 million units for the year.

Samsung also revealed that it is experiencing strong demand for NAND flash memory, which stores information in consumer devices such as MP3 players and digital cameras, which helped stem the Digital Media division’s slide.

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