Samsung Q3 earnings decline on lower chip prices

Samsung Q3 earnings decline on lower chip prices

Samsung Electronics reported a 30 percent drop in its third quarter net profit, in part due to lower prices for certain kinds of memory chips.

Samsung Electronics, the world's largest memory chip and liquid crystal display (LCD) screen maker, has reported its third quarter net profit dropped 30 per cent compared to the same time last year, in part due to lower prices for certain kinds of memory chips.

The company, based in Seoul, South Korea, said its net profit slid to 1.88 trillion won ($US1.8 billion as of September 30, the last day of the period reported), down from 2.69 trillion won during the third quarter last year.

Revenue rose 1 per cent to 14.54 trillion won, the company said.

Samsung blamed a slower than expected adoption of Double Data Rate 2 (DDR2) dynamic RAM (DRAM) chips and lower prices for NAND Flash memory chips for a 3 per cent year-on-year sales decline at its semiconductor division.

The PC industry continued to prefer using older DDR chips, slowing the migration to DDR2 DRAM chips, the company said.

Nearly all of Samsung's major divisions suffered during the quarter, save its LCD division, which posted a 41 per cent year-on-year increase in sales, and its appliances division, which grew sales 5 per cent year-on-year.

The company's handset sales fell 4 per cent compared to the same time last year, it said, while its digital media division reported a 16 per cent decline in sales.

"Despite all the prevailing difficulties in the market, Samsung produced better than expected results in the third quarter, and we expect better results for both the top and bottom line [revenue and net profit] in the fourth quarter," a senior vice-president at Samsung, Woosik Chu, said.

He blamed part of the company's earnings shortfall on a $US300 million fine Samsung had to pay as part of a US Department of Justice investigation into DRAM price fixing.

Samsung and its US subsidiary, Samsung Semiconductor, agreed last Thursday to plead guilty to participating in an "international conspiracy" to fix prices of DRAM chips and to pay the penalty, the second largest criminal antitrust fine in US history.

The payment shaved $US200 million off Samsung's third quarter net profit; an additional $US100 million had already been set aside for the settlement, Chu said.

Samsung expects stronger sales in the fourth quarter from all of its three main business units: semiconductors, LCDs and telecommunications.

Shipments of DDR2 chips should improve in the fourth quarter as a shortage of chip sets needed to connect them to Intel microprocessors dissipates, the company said. Sales and prices of specialty DRAM parts used in mobile phones and game machines should also increase on brisk demand and new product launches.

The company's new star chip product, NAND flash memory, would continue to be in short supply due to brisk demand for MP3 players, digital cameras and other devices the chips are used with, Samsung said. The company expected to promote 6GB and 8GB capacities for MP3 players over the next six months, up from the increasingly popular 2GB and 4GB models available now.

But, thanks to the shortages, NAND prices might not drop as sharply during the October to December quarter as they did in the third quarter, when they fell 19 per cent, Samsung executives said. Samsung cut prices drastically during the July to September period to boost demand for higher-capacity NAND.

"The NAND Flash shortage will continue for the next two quarters," vice-president of Samsung's semiconductor division, Ilung Kim, said.

Samsung's LCD division fared far better than in last year's third quarter thanks to cost reductions from a new LCD plant that it has up and running. It is known as a seventh-generation plant due to the advanced machinery that allows for the production of more, and larger, screens.

In the current quarter, demand for LCD screens looks so strong that the company expects a shortage to cause prices to continue rising, particularly for large screens used in notebook PCs and LCD-TVs.

Samsung expected its cell phone sales in the fourth quarter to match the 26.8 million units sold during the third quarter, thanks to heavy demand for new handsets in emerging markets in South America, Eastern Europe and Asia, and brisk replacement demand in other areas, it said.

The company also revised upward its full-year forecast for total global handset shipments, to 760 million units from 720 million units, of which Samsung should account for more than 100 million handsets, the company said. Last year, Samsung shipped 86 million mobile phones.

It expected to launch three to five new handset models in the fourth quarter.

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