Samsung reports 15% quarterly profit drop

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Samsung Electronics, the world’s largest producer of memory chips and flat panel displays, reported a 15 per cent drop in first-quarter profit Friday, hit by lower prices.

But the South Korean company presented a brighter outlook as prices for its memory chips, handsets and liquid crystal display (LCD) TVs – which normally perform better in the second half of the year – are expected to recover and its new premium handsets are gaining popularity.

“While our first-quarter performance may have been a little weaker than expected, this weakness was limited in scope just to semicon. But the other divisions – telecoms, digital media, LCD – all did well,” Lee Keon-hyok, the company’s vice president of investor relations, said. “By the second half of this year, all four major businesses are likely to be riding high all at the same time on seasonal output momentum and cost reductions.”

Net profit for the first three months of this year fell to Won1,599bn from Won1,882bn a year ago. Operating profit fell from Won1,614bn to a four-year low of Won1,183bn while sales rose 3 per cent to Won14,386bn.

Operating profit from semiconductors tumbled 52 per cent as the price of Nand flash memory chips, used in mobile digital devices, fell nearly 50 per cent. But the company said it expected higher Nand chip prices and stable D-Ram computer chip prices in the second half.

Samsung’s LCD business reported a 32 per cent drop in operating profit but the company expected to see higher returns with its eighth-generation line coming on stream in August, ahead of schedule.

A bright spot was Samsung’s telecom business, which served as a buffer against other cyclical businesses. Telecom profit margins at the world’s third-largest handset maker were helped by rising sales of its ”Ultra Edition” models and better performance in China and other emerging markets. The company expects full-year sales to exceed its target of 133m.

Samsung’s digital media and home appliance businesses remained in the red, with Won35.5bn and Won200m of operating losses respectively.

“I think the results hit the bottom in the first quarter and they will get better from the second quarter, with visible improvement in the second half,” said James Song at Goodmorning Shinhan Securities. “The performance of its semicon division was disappointing, but the handset business fared better. We see a lot of positive changes in the telecom business in terms of cost-cutting and marketing, since the new president came in.”

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