Samsung Electronics Co Ltd posted a lower-than-expected quarterly profit and faces a tough second half with a sluggish memory chip market and lower margins in flat screens and mobile phones. Shares in the $84 billion South Korean firm, the world's top maker of both memory chips and liquid crystal displays (LCDs), tumbled 6.2 percent on Friday in their biggest daily fall in 4 years.
"It's unlikely that we will be achieving a sharp recovery (in the third quarter)," said Chu Woosik, executive vice president of investor relations, noting that the global economic slowdown was expected to persist through the year and that visibility for the memory chip sector was "quite low".
Next year looks equally daunting for the company, also the world's No 2 mobile phone maker, with slower demand set to impact all consumer electronics, from flat-screen TVs to mobile phones and personal computers. Samsung is Asia's third most valuable global brand after Toyota and Honda.
"Recovery in the memory chip sector will not come anytime soon as the macro backdrop remains weak, though it will not get worse from here," said Jay Kim, an analyst at Hyundai Securities. Samsung's April-June net profit rose 51 percent to 2.14 trillion won ($2.12 billion), boosted by strong LCD and handset businesses, from 1.42 trillion won a year ago when plunging computer memory chip prices hit its earnings. It earned 2.19 trillion won in January-March.
Analysts had predicted a net profit of 2.30 trillion won. Operating profit for April-June rose to 1.89 trillion won from 911 billion won a year ago, below the 2.08 trillion won predicted by analysts. First-quarter operating profit was 2.15 trillion won.
April-June revenue rose to 18.14 trillion won from 14.63 trillion won a year ago. Samsung shares had jumped 4.6 percent on Thursday on talk of a share buyback, but the company instead announced a modest interim dividend. It said it had not yet decided whether to buy back shares this year.
Operating margins at Samsung's semiconductor unit rose to 6 percent from 4 percent in the first quarter, helped by technological advances, but were still a far cry from the 31 percent margin posted in late 2006.
Prospects for a strong recovery in the second half is fading for makers of dynamic random access memory (DRAM) chips, used in personal computers. Many analysts predict the tailspin could drag on into the second quarter of 2009. On Wednesday, Powerchip and Nanya Technology, Taiwan's two largest DRAM makers, posted their fifth straight quarter of losses.
The world's No 2 memory chip maker Hynix said on Thursday it would suspend production at its US plant and consider selling it as prices suffer a prolonged slump. Steep price drops have also hurt earnings from NAND flash memory chips, used in portable gadgets. Samsung said it expected NAND oversupply to persist through the second half.
Samsung's display division posted a strong quarter, helped by robust demand for flat-screen TVs, though margins fell slightly to 21 percent from the first quarter's 23 percent. But Samsung suffered margin erosion in its TV business amid a price war with Sony Corp in the key North American flat-screen TV market.
The company also said it would spend 938.5 billion won to set up a mobile display joint venture with affiliate Samung SDI, which will spin off its small-size LCD and organic display businesses for the project.
Samsung, second only to Nokia in the handset market, sold 45.7 million phones in April-June, a slight dip from 46.3 million in January-March. Mobile margins also eased to 13 percent from the first quarter's 15 percent, but the company vowed to maintain margins in the double digits.
Despite the difficulties ahead, Samsung sounded upbeat that it could cement its dominance in key businesses while smaller rivals were reeling. Samsung said it aimed to boost its DRAM market share, currently in the mid-30 percent range, by 1 or 2 percentage points each year.