Lex: Samsung Electronics Premium

Samsung Electronic's profits have taken an even bigger tumble than flat-screen prices. Operating profits at Asia's biggest technology company virtually halved in the first quarter of 2005 compared with a year earlier. Once-fat operating margins have been hammered as thin as its elegant liquid-crystal display television screens: 1.2 per cent for LCDs, and negative in the digital media division.

Falling prices battered semiconductor margins too, from 43 per cent a year ago to 31 per cent. Free cash flow turned negative for the first time in two years.

Coming on the heels of LG Philips LCD's first-quarter loss of $78m, the signals look grim. However, Samsung's confidence is undented. It forecasts a rebound in demand in the second half. With a slew of extra capacity coming on line, it certainly needs one. By October, its seventh generation plant will be churning out 60,000 panels a month, roughly a twelfth of last year's global demand for flat screen TVs.

Confidence is justified. Samsung has kept a more astute eye on trends than some of its rivals, benefiting, for example, from a better product-mix in chips. But this year's $10.3bn of planned capital expenditure only a tad lower than last year's earnings looms large as profits slump. Perhaps Samsung is tacitly acknowledging these concerns. In spite of a healthy cash pile and the 23 per cent slump in the shares since last April, it has not launched a fresh buy-back programme.

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