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June 22, 2006 11:47 am

Samsung upbeat on second half outlook

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Samsung Electronics, the South Korean technology company, on Thursday presented an upbeat business outlook to analysts, saying it had captured the lead in the US LCD TV market in May from arch-rival Sony.

Countering growing concerns about weaker margins in its core businesses, the South Korean company also said earnings would be “much better” in the second half due to higher demand for its memory chips, flat screen TVs and handsets.

Samsung said its liquid crystal display business was still profitable, even as its competitors were suffering losses, due to its focus on large-size LCD TVs.

The company had a 16.1 per cent share of the US market compared with 11.5 per cent for number two Sony in May, and a 20.8 per cent share of the European LCD TV market in April compared with 13.4 per cent for second runner Philips, according to market researchers NPD and GFK. Its lead was due to the increasing popularity of its premium Bordeaux TV, the company said.

The company said it was not planning to cut output, unlike its rival LG Philips LCD, which said last week that it would adjust production due to rising inventories.

The optimistic profit guidance came as Samsung has attempted to assure investors of its performance amid worries about its competitiveness in some business areas, especially the handset segment.

Samsung’s shares have been flagging since the company in April announced a 25 per cent drop in first-quarter operating profit but the shares closed up 1.62 per cent at Won565,000 on Thursday.

“Earnings certainly seem to have hit the bottom in the first half. Demand and prices have been improving since mid-May and we expect the upward momentum to accelerate in the second half,” said Chu Woo-sik, head of the company’s investor relations.

Mr Chu said D-ram prices were very strong with record-high operating profit margins at above 30 per cent. He said that prices of Nand flash memory chips were stabilising after sharp falls in the first quarter and he forecast a supply shortage in the third quarter, due to strong demand driven by new multimedia products.

Brushing aside growing concerns about Samsung’s handset business, Mr Chu said shipments and margins would “significantly” improve in the second half. He forecast record-breaking 30m shipments with “double-digit” margins in the third quarter, as the company introduced more than 30 new models in the current quarter.

Although the company is facing increasing calls to enter the lower-end segments, Mr Chu said Samsung would stick to its premium strategy for its brand value. “Even if we post bigger profits from lower-end handsets, it is not so good for the overall brand value of the company,” he said.

But analysts remained sceptical about Samsung’s handset strategy and urged the company to strengthen its product line-ups. “Its premium image is weaker now with no hit models. It needs to enter the lower-end markets to catch up with Nokia and Motorola, despite short-term risks. Otherwise, its problems will continue,” said Greg Roh at Korea Investment & Securities.

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