Samsung profits slide on weak memory chip market

Samsung Electronics Co. saw operating profits slide during the first three months of the year on weakness in the memory chip market, it said Friday.

The company, which is one of the largest manufacturers of the dynamic RAM chips used in computers and NAND memory chips used in consumer electronics devices, said net profit dropped 15% to 1.6 trillion won ($1.7 billion U.S.). Sales rose 3% to 14.4 trillion won.

"While operating profit came in slightly below market consensus, this shortfall was limited to weaker than expected performance in the semiconductor business," said Lee Keonhyok of Samsung's investor relations department in a telephone conference call. "While not making any excuses, it's fair to say weak performance of semiconductors was reflected by a marketwide decline in DRAM and NAND prices."

Samsung's semiconductor business unit saw sales climb 3% from the same quarter a year earlier, but operating profits dropped by more than half to 540 billion won.

"DRAM and NAND prices fell too sharply over the first quarter to be offset by our cost-reduction efforts," said Lee. He estimated that some of Samsung's competitors were also being forced to sell chips at a loss to keep a share of the market.

Looking ahead, things are positive, said Kang Yeongho, vice president of Samsung's semiconductor business. He said that prices of NAND chips have been recovering since late February and that DRAM prices are also expected to climb as demand rises.

The low prices are good news for consumers. PC makers are likely to start shipping Vista PCs with 2GB of main memory because of the low prices, and the price of 2GB flash memory cards is now roughly that of a 1GB card a few months ago, said Kang.

Samsung's telecom business had a good quarter on the back of strong demand for its Ultra edition cell phones. Operating profit jumped 29% on the same period a year earlier to eclipse that of semiconductors and become Samsung's top earning business unit in the first quarter.

Cell phone shipments were a record 34.8 million phones, an increase of 6% compared with the last quarter of 2006, while the global cell phone market was estimated by Samsung to have shrunk by 10%. Looking ahead, the company plans to capitalize on the success of the Ultra series and introduce phones for emerging markets, it said.

Samsung originally targeted shipments of 133 million phones this year but already expects to exceed that, said David Steel, vice president of the telecommunications business unit.

The company's LCD business recorded a 6% rise in revenue but a 32% drop in operating profits over the same period last year. The digital media business, which includes Samsung's PC and TV operations, reported almost unchanged revenue and a loss of 40 billion won.

Copyright © 2007 IDG Communications, Inc.

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