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Samsung shares steadied as the week closed, but Investors remained skeptical about the largest company in the emerging markets, as Samsung's experience temporarily put paid to hopes of an imminent recovery in liquid crystal display panels and the dollar's weakness cut into earnings.
Samsung's first-quarter profit slumped to 1.5 trillion Korean won ($1.47 billion) from KRW3.14 trillion a year earlier and KRW1.83 trillion in the fourth quarter, amid falling prices for LCDs and computer memory chips. Analysts surveyed by Dow Jones had expected earnings of KRW2.1 trillion.
Samsung said the seasonally slow second quarter would "stay challenging," that dynamic random access memory chip sales would stay weak, that profit margins for mobile phones would probably deteriorate, and that the LCD supply glut wouldn't ease until year end. The strengthening won slashed $880 million from second-quarter operating profit. A wider-than-expected loss at Samsung Card didn't help.
And though demand for flash memory is robust, and Samsung is committing its chip-fabrication capacity to flash memory, some worry that rival Hynix is poised to ramp wafer starts of flash, killing prices.
Simon Woo of Merrill Lynch cut Samsung to Neutral, explaining that he expects "more visible declines in earnings," and because he thinks margins are deteriorating, for memory chips and for consumer electronics. Moreover, Woo's channel checks make him more cautious than Samsung's positive stance warrants.
Samsung stock, at KRW491,500 last week, is now off by a quarter from its high of KRW638,000. Woo puts fair value for Samsung at KRW480,000. Trouble is, that's not enough to tempt some value investors.
Egor Rybakov, an analyst at NWQ Investment Management, and a specialist in tech hardware says, "Is it time to buy now? I don't think so." LCD TVs with 30-inch screens, Rybakov point out, are still too expensive. "We need a major price crash" to $1500 or so, he says. Without that, "We might see more uncertain profitability in LCD for a couple of years."
excerpted from Barrons, Region's Marts Rocked by Tech Slide by Leslie Norton 4.18.05 online.barrons.com
Samsung Electronics was 22% of KEF as of 9/30/04.
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