Samsung Electronics Co Ltd 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. 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 and Motorola, posted record handset sales in the first quarter but saw margins fall sharply from a year ago.
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 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.
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.
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.
The display business at Samsung, the No 2 maker of large liquid crystal display (LCD) panels world-wide, 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.
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