Samsung 1st-Qtr Profit Drops 52% on Lower Chip Prices (Update3)
April 15 (Bloomberg) -- Samsung Electronics Co., Asia's biggest electronics maker by market value, posted a larger-than- expected 52 percent drop in first-quarter profit on falling prices of semiconductors and liquid-crystal displays.
Net income fell to 1.5 trillion won ($1.47 billion), from 3.14 trillion won a year earlier, the Suwon, South Korea-based company said in a statement today. The median estimate of 17 analysts surveyed by Bloomberg was 2.17 trillion won. Sales fell 4.2 percent to 13.8 trillion won.
The slide in earnings at Samsung, the world's No. 2 chipmaker after Intel Corp. and the largest LCD producer, reflects a drop in prices caused by slowing consumer electronics demand and excess production. Chief Executive Yun Jong Yong, 61, stuck to his plan to increase spending on plants and equipment by 34 percent to 10.27 trillion won this year, forecasting a rebound in demand.
``I'm very disappointed,'' said Yoo Ji Yeong, who helps oversee the equivalent of $980 million at CJ Investment Trust Management Co. in Seoul. Yoo said he held ``lots of Samsung shares.''
Operating profit, or sales minus the cost of goods sold and administrative expenses, dropped 46 percent to 2.15 trillion won. Analysts had projected 2.40 trillion won. The company said it booked a 700 billion won loss in the quarter from its Samsung Card Co. unit.
Shares of Samsung Electronics fell as much as 2 percent after the company reported earnings at 9:50 a.m. in Seoul. The stock recently dropped 1.5 percent at 494,500 won.
A report from International Business Machines Corp. that also showed first-quarter profit missed analysts' estimates spurred a decline in Asian technology stocks. The Morgan Stanley Capital International Asia-Pacific Index, which measures 945 stocks, lost 1.1 percent, with computer-related stocks accounting for almost a quarter of the drop.
Lower Chip Prices
Prices for dynamic random access memory, or DRAM, chips fell 16 percent in the first quarter from the fourth, while NAND flash memory semiconductors fell 9 percent, Samsung said.
The company is having ``difficulty'' in meeting NAND demand, Kim Il Ung, vice president of Samsung's chip business said on a conference call with investors today.
The company's profit decline contrasts with 2004, when the 36- year-old company had record net income of 10.7 trillion won, equivalent to $10.5 billion at current exchange rates and greater than the $10 billion earned in 2004 by Redmond, Washington-based Microsoft Corp., the world's largest software maker.
Samsung's profit, which rose for five quarters before the final three months of 2004, is also being eroded as a weaker dollar reduces the value of export earnings. As South Korea's top exporter, Samsung generated 83 percent of sales overseas last year. The won has gained 13 percent against the dollar over the past 12 months, the most among 16 major currencies, according to Bloomberg data.
Slowing Demand
Slowing demand for computers made by Dell Inc. and other companies is prompting Samsung to shift focus to chips for cell phones, digital music players and other mobile gadgets. Revenue from chips that go into mobile devices will account for half of the company's semiconductor revenue by 2008, up from less than 30 percent at the end of last year, Hwang Chang Gyu, head of Samsung's semiconductor business, said last month.
Samsung's first-quarter shipments of liquid-crystal displays rose 3 percent from the fourth quarter to 13.8 million units, the company said today. Operating profit from liquid-crystal displays fell to 20 billion won from 840 billion won a year ago, it said.
LCD profits were hurt by a glut of screens used in computer monitors and televisions. The oversupply of screens drove prices 41 percent lower in the first quarter, compared with a year earlier, according to Seoul-based LG.Philips LCD Co., which earlier this week reported its first quarterly loss in two years.
Outlook
Samsung and other display makers are adding capacity on a bet that lower prices will stoke demand for LCD televisions, which are thin enough to be mounted on walls. Samsung plans to double LCD spending this year to 2.9 trillion won.
For 2005, the company raised its forecast for liquid-crystal display shipments to 177 million units from the January forecast of 168 million units. Samsung said shipments in the second quarter will increase 9 percent from the first quarter to 9.6 million units.
``Everyone's shifting their attention to the second half,'' Kim Seong Ki, who oversees the equivalent of $790 million as chief investment officer at Chohung Investment Trust Management Co. in Seoul, said before the earnings announcement.
`Stay Competitive'
Samsung stuck to its sales target of 100 million mobile phones in 2005, while raising its forecast for global shipments to 700 million units this year. Mobile-phone shipments increased 16 percent from the fourth quarter to 24.5 million units, while the average export handset price rose to $182 per unit.
Global growth in mobile-phone shipments is expected to slow to 5.3 percent this year and 3.4 percent in 2006 from 23 percent in 2004, California-based ISuppli said in February. To counter the decline, Samsung is trying to boost profit margins with new handset designs such as the slide-up D-500.
``I like the fact that Samsung's management, instead of thinking about short-term profits, is constantly thinking about how to stay competitive,'' said Yoo Jung Sang, who oversees the equivalent of $3.1 billion at Woori Investment Trust Management Co. in Seoul. ``That's reflected in their heavy spending and their ability to churn out new products.''
Full-year net income will probably fall 20 percent to 8.7 trillion won, according to the mean estimate of 37 analysts surveyed by Thomson Financial.
(Samsung's conference call with investors is available on {LIVE <GO>} or on the company's Web site at samsung.com . A replay will be available at (82) (31) 810-3100 with passcode 28466.) |
