Samsung Earnings Fall to 4-Year Low
By Cho Jin-seo
Staff Reporter
Samsung Electronics’ earnings fell to a four-year low in the first quarter of the year as profits from its semiconductor and LCD businesses were cut by two thirds from the previous quarter.
Operating profit was 1.18 trillion won, 42 percent down from the fourth quarter of 2006, the company announced yesterday. It was even worse than the gloomy expectations from stock analysts, who had predicted around.
The result has revealed the vulnerability of Samsung’s heavy dependency on memory chips. The company showed improved performances in three of its five major divisions _ digital media, household appliances, mobile phones _ but the gains from those fields were overwhelmed by the decrease in profits from the semiconductor sector where operating profit plummeted from 1.66 trillion won to 540 billion won.
Total revenue decreased by 8 percent to 14.39 trillion won, and net profit also slid by 32 percent to 1.6 trillion won.
But company officials remained optimistic, saying that the memory chip market has hit bottom and things will only improve over the rest of the year. The firm’s stock price also remained almost untouched by the poor performance, closing at 601,000 won, down just 0.5 percent from Thursday.
``Though the first-quarter result was a bit worse than expectations, the decrease in profits was limited just to the semiconductor division,’’ said Lee Keon-hyok, vice president of an investors relations team, during a conference call with investors. ``By the second quarter the profits from all the major divisions will be riding high at the same time due to seasonal momentum and cost reductions.’’
Samsung manufactures thousands of electronics goods ranging from TVs to refrigerators to mobile phones, but its main cash cows are DRAM and NAND flash memory chips. Their market prices have fallen by up to 40 percent since January, dealing a painful blow to the world’s largest memory chipmaker. Chip prices will rise in the second half due to a supply shortage and rising demand, Samsung insisted.
The profit from the liquid crystal display (LCD) division also dropped from 310 billion won to 70 billion won due to a supply glut. LG.Philips LCD, another major player in the LCD industry, suffered 200 billion won in operating losses earlier this week.
On the sunny side, Samsung said it sold record-high 34.8 million mobile phones, with a respectable operating margin of 13 percent. The impressive performance ``might have been related to the leadership of new CEO (Choi Gee-sung),’’ said Robert Lee, another investor relations executive. Choi, who was formerly the boss of the digital media division, took over the ailing phone division in January from Lee Ki-tae, and had vowed to catch up with market leader Nokia within a few years.
Unlike his predecessor, Choi has widened Samsung’s mobile phone portfolio into the low-end sector, launching a number of cheap models in emerging markets such as China
``The worldwide phone market has shrunk by 10 percent in the period but we have increased our sales. It means our strategy has worked quite well,’’ Lee said.