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October 14, 2005 5:09 am

Chip prices weigh on Samsung Electronics

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Samsung Electronics, Asia's most valuable technology company, on Friday reported a 30 per cent drop in third quarter profit, hit by lower prices of memory chips and flat-panel displays.

But the South Korean group said that prices of liquid crystal display panels began to rebound in the third quarter on a supply shortage that was expected to persist into the current quarter.

The company was optimistic about its business outlook, predicting that its major businesses – semiconductors, mobile phones and liquid crystal displays – would see stronger demand worldwide.

“Despite the challenging business environment and depressed market conditions, sales of our mainstay products remained robust, demonstrating the inherent strength and competitiveness of Samsung's business model," said Chu Woo-sik, head of investor relations.

“Samsung Electronics anticipates positive fourth-quarter results as demand for IT products tends to surge in the year-end.”

Samsung earned Won1,694.4bn ($1.6bn) during the three months to September 30, down from Won2,689.5bn a year earlier, on sales that were 1.4 per cent higher at Won14,538bn.

Net profit was cut by an additional Won200bn provision against a $300m fine from the US Justice Department after Samsung pleaded guilty to allegations it was part of an international price-fixing conspiracy.

Analysts said the quarterly results were broadly in line with their expectations, and forecast Samsung would report better earnings in the fourth quarter. The company expected full-year profits to fall by as much as 20 per cent from last year's record $10.6bn.

“D-ram prices are not likely to fall much and profit from the flash memory business will increase as they bring down costs further,” said Jae Lee, an analyst at Daiwa Securities. “The handset business looks okay too, but my biggest concern is that the LCD industry will probably see an oversupply again early next year.”

Samsung’s LCD sales jumped more than 40 per cent in the third quarter, contributing to an 11 per cent gain in overall profit from the previous quarter. Samsung said it had no plans to cut investment in the LCD division, saying it was optimistic about the sector despite analysts’ concerns. as it expected a supply shortage in some segments to continue in the fourth quarter.

The recovery of LCD prices in the third quarter was helped by stronger demand for monitors and large-sized TVs.

Revenues from the semiconductor business were 3.2 per cent lower as prices of D-ram chip prices plunged about 40 per cent from a year ago.

The company said it expected D-ram prices to fall slightly in the fourth quarter while supply of NAND flash memory chips, widely used in digital consumer products, would remain tight at least for the next two quarters.

Samsung sold a record 26.8m phones in the third quarter, up 10 per cent from the previous quarter. Profit margins held steady at 12 per cent.

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