LEX When the chips are down, even the mighty take a battering. Samsung Electronics, Asia’s biggest technology group, yesterday published an 18 per cent year-on-year slump in operating profits at its semiconductor division. In the same second quarter Taiwan’s two biggest DRAM chip makers, Powerchip and Nanya Technology, plunged into the red.
Samsung’s more diversified business meant it pulled off a still-respectable – if below expectations – doubling of group operating profit to $1.9bn in the second quarter. There were a few pleasant surprises. Shrugging off falling panel prices, the LCD division achieved operating margins of 21 per cent, more than double those of the same quarter last year. Mobile handset sales fell quarter-on-quarter but more snazzy phones lifted average price. But weakness in semiconductors, responsible for a quarter of the group’s total sales, underlines the pain in the sector.
Memory chip makers lost an aggregate $2.5bn or so in the first quarter, according to iSuppli Corporation; only three players managed to turn a profit. Last year, when a glut pushed prices down 70-80 per cent, makers of dynamic random access memory chips’ aggregate operating margin was negative to the tune of almost 10 per cent. That has since deteriorated. Dynamics are against the industry as fixed costs rise and economic slowdown dents demand for PCs, mobile phones and other goods using memory chips. And, notwithstanding the sector’s inherent cyclical nature, manufacturers persist in ploughing in more money. Samsung, with firepower to outspend its peers, has earmarked capital expenditure of W7,000bn ($7bn) this year, or almost 40 per cent of sales based on the halfway stage. The optimistic reading is smaller players will be crowded out, leaving Samsung to grab market share. Alas, history suggests chipmakers are more resilient than US consumers.
