Samsung Profit Drops Sharply [NYT]
By MARTIN FACKLER
Published: April 14, 2006
Tokyo, April 14 — Samsung Electronics, the South Korean maker of consumer electronics, announced sharply lower quarterly profits today in its core consumer electronics businesses as steep declines in global prices hurt earnings from cell phones and memory chips.
Samsung said it expected the slump in prices to continue until this summer — good news for consumers but a possible sign of weak earnings ahead for other electronics manufacturers. Samsung, based in Suwon, South Korea, reported earnings for the three months that ended March 31 before rivals like Finish cell phone maker Nokia and Intel and Motorola of the United States.
"This shows that cheaper products have been driving down prices in the global market," said Denny Kim, an analyst at the Seoul-based brokerage, Woori Investments & Securities. "The first half of this year isn't a good time for Samsung."
Overall, Samsung said its net profit in the quarter rose 26 percent from the year before to 1.88 trillion won ($1.95 billion). But analysts said the gain came largely because a one-time writeoff to help a credit card affiliate had suppressed net profit in the first quarter of last year.
Operating profit, which more accurately reflects the underlying business strength, fell 25 percent to 1.61 trillion won ($1.68 billion), well below most analysts' forecasts. Samsung said sales edged up 1 percent to 13.96 trillion won ($14 billion).
The company blamed intensifying competition, weak consumer demand and a production glut for the price declines in cell phones and chips, its two largest business categories. Operating profit fell 45 percent in the telecommunications business and 19 percent in the semiconductor business, Samsung said.
In particular, falling prices cut into profit margins in one of Samsung's best-selling products, the so-called NAND flash memory chips used in iPods, digital cameras and other products to record songs and images. Samsung, the world's largest maker of memory chips, said it expects flash memory prices to fall another 20 percent in the next quarter alone.
Samsung was more optimistic about the second half of the year. It said it expected prices to bottom out or even rebound as consumers resume purchasing MP3 players, cameras and other products that use flash memory chips.
"I think finally we will see the light at the end of the tunnel," Chu Woo Sik, a senior vice president for investor relations, said today, according to Reuters.
The company also said it would try to keep pace with price declines by making factories more efficient. It said will spend $220 million to add a new, more advanced production line at its only memory chip factory outside South Korea, in Austin, Texas.
In cell phones, analysts said Samsung had been forced to cut prices and sell more low-end phones, which have smaller profit margins, after rivals like Motorola and Nokia rolled out cheaper models. But they also said Samsung's profits could rebound in the second half of the year when the company releases several new higher-end models, including a half-dozen super thin phones.
"The new products could bring consumers back to higher-end models," Woori's Mr. Kim said.
One bright spot in the first quarter was sales of liquid crystal display televisions, the most popular type of flat panel TVs. Other manufacturers like Sharp and Sony have also seen strong sales as L.C.D. TVs have gained popularity in the United States and Europe.
Operating profits in Samsung's L.C.D. TV business jumped four-fold, the company said, as booming sales offset price declines that are expected to reach up to 15 percent this year. Samsung jointly builds L.C.D. screens with Sony.
nytimes.com |
