Samsung Electronics’ Net Profit Down 44 Percent
4th-Quarter Outlook Gloomy With Sharpest Decline in Demand Expected
By Kim Yoo-chul
Staff Reporter
Samsung Electronics suffered its biggest decline in net profits in more than three years.
In the third quarter, its net income fell 44 percent to 1.22 trillion won or some $860 million, from 2.19 trillion won a year earlier.
Samsung, the world's biggest memory chip and liquid crystal display (LCD) maker as well as the second-biggest cell phone producer, painted a "negative outlook" in the fourth quarter with a forecast of the sharpest decline in prices for chips and flat-screens.
"Samsung will cut spending in chips, this year, as we barely see a sign of turnaround in the global chip market," Chu Woo-sik, the company's investor relations chief said in a press conference on its third quarter earnings, Friday.
In line with the decision, Samsung lowered its shipment target for DRAM chips to 90 percent from 100 percent.
Earlier, Samsung said it would invest 7 trillion won in memory chips, this year. "Size of investment cuts in chips would be some few million dollars."
Samsung expects prices for DRAM chips to fall 30 percent further in 2009, while prices for NAND flash memory, used to store songs and pictures in electronics to decline 40 percent, next year.
"It seems uncertain that our LCD business will increase operating profit in the fourth quarter as Samsung is now affected by all the possible impacts from the macro-economic woes," Chu added.
Memory chips are widely used in personal computers and other gadgets, while LCD panels go to pricey flat-screen TVs. Leading chipmakers have been suffering falling profits due to a prolonged bearish move of tight pricing for memory chips and panel makers are cutting production to tackle rising inventories and declining demand.
Samsung has been cutting its LCD production by 5 percent since August. LG Display, the world's second biggest LCD supplier, last week, said investment would fall to as low as 1.5 trillion won in 2009.
Meanwhile, sales rose 15.4 percent year-on-year to 19.2 trillion won, but operating profit dropped 51 percent to 1.02 trillion won, Samsung said in a regulatory filing. Samsung announced its quarterly result based on a consolidated basis ― a guideline that includes the company's overseas performances.
Profit from its semiconductor division slumped 74 percent to 240 billion won on sales of 4.78 trillion won, while its LCD business fell 8 percent from 21 percent in the second quarter.
Samsung sold 51.8 million mobile phones in the latest quarter from 45.7 million units in the second. But profit margins in the handset division fell to 7 percent from 13 percent.
Shares of Samsung Electronics plunged 13.76 percent to end 407,500 won on the Korea Exchange.
"It will be difficult for Samsung to maintain a double-digit operating profit in the fourth quarter. But Samsung will be more aggressive in Asian emerging markets by introducing more less-pricey phones," Chu said.
"We are still in progress for the construction of our handset plant in Vietnam ― a key catalyst for Samsung towards the low-end phone market for emerging countries," Chu added.
Over a possible effect by weakening local currency, Chu said the currency impact was "limited," citing a weaker demand for electronic gadgets.
On a question over the SanDisk deal, Chu said Samsung will open a possibility for further discussion, though the Suwon-based technology giant doesn't have any immediate plan to renew talks.