Samsung 1st-Qtr Profit Drops 52% on Lower Chip Prices
April 15 (Bloomberg) -- Samsung Electronics Co., which earned more than Microsoft Corp. in 2004, posted a larger-than-expected drop in first-quarter profit on lower prices of semiconductors and liquid-crystal displays.
Net income fell 52 percent, the biggest drop in three years, to 1.5 trillion won ($1.46 billion), from a year earlier, the Suwon, South Korea-based company said in a statement today. Samsung, the world's No. 2 chipmaker after Intel Corp. and the largest LCD producer, said sales slid 4.2 percent, the first decline in seven quarters.
Samsung joins International Business Machine Corp. and Sun Microsystems Inc. in reporting profit that missed analysts' estimates, prompting Asian technology stocks to decline on concern recovery in demand will be delayed. Royal Philips Electronics NV, which competes with Samsung in LCDs, may today report profit fell 73 percent in the quarter.
``This just inflated worries that the recovery in the information technology industry will be delayed by a quarter or two,'' said Yang Jun Won, who oversees the equivalent of $390 million at Macquarie-IMM Investment Management Co. in Seoul. ``This translates to investors thinking they don't need to hold Samsung shares now.'' He said he recently sold Samsung shares.
Samsung shares fell 2.2 percent to 491,000 won, accounting for 40 percent of the benchmark Kospi index's 1 percent slide at 1:40 p.m. in Seoul.
`Disappointed'
Revenue fell 4.2 percent to 13.8 trillion won. Operating profit, or sales minus the cost of goods sold and administrative expenses, plunged 46 percent to 2.15 trillion won, falling short of the 2.40 trillion won median forecast of 17 analysts surveyed by Bloomberg. Net income was 30 percent less than the median projection of analysts after the company booked a 700 billion won loss in the quarter from its Samsung Card Co. unit.
``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.''
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.
Weaker Dollar
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, 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 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.
Slowing Demand
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.
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.
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.
Outlook
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.
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.
`Stay Competitive'
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.
