Samsung expected to post record profit in 2nd quarter

By Kim Yoo-chul

Staff Reporter

Samsung Electronics is set to extend its streak of record-breaking profits in the second quarter thanks to increasing demand powered by the global economic recovery.

This robust outlook is pushing Samsung, the world's biggest technology company by revenue, to expand its spending on key facilities from memory chips to flat-screens.

The only hurdle is the iPhone fever that is denting the world's second largest mobile phone maker.

The optimistic outlook came after Samsung reported that its net profit for the first quarter jumped almost sevenfold after rebounding demand for PCs drove up chip prices.

Net profit was 3.99 trillion won, up from 582.2 billion won a year earlier. Sales increased 21 percent to 34.64 trillion won. Operating profit or sales minus the cost of goods sold and administrative expenses was 4.41 trillion won, up from 593 billion won, the company said in a regulatory filing with the Korea Exchange (KRX).

"Samsung is cautiously optimistic that second-quarter earnings will improve from the first quarter. As for the second half of the year, we are also optimistic as demand for memory chips and LCDs will remain strong, in addition to continuous brisk sales of handsets and TVs," Robert Yi, the chief of Samsung's investor relations team, said in a conference call, Friday.

"Samsung will substantially increase investment on facilities. The final announcement of our additional spending plan will come before July," Yi said.

Samsung had previously disclosed it would spend 8.5 trillion won - 5.5 trillion won on memory chips and 3 trillion won on LCDs. As of the end of the first quarter, its cash-equivalent assets amounted to 20.6 trillion won, according to the company.

Samsung's rare admittance of its aggressive spending plan came a month after Lee Kun-hee returned as Samsung Electronics chairman.

Lee, who helped Samsung become an international player, said most businesses and products that represent Samsung will disappear from the market in the next decade.

Yi said the strengthening won against the greenback and euro will not affect the company's earning as much as first feared this year, considering rising demand for consumer products.

Samsung is the world's top manufacturer of memory chips used in PCs and other high-end digital products such as smartphones and cameras.

It is also the leader in the global television market, while Samsung only trails Nokia in the mobile phone industry.

"We expect Samsung to report another brisk result in the current quarter. But rising concerns over oversupply in chips, flat-screens and higher competition in smartphones will burden it," Park Hyun, an analyst at Prudential Investment, said.

"The operating profit for the first three months was a quarterly record. Despite unfavorable seasonal factors, sales for consumer products were good amid the global economic recovery," Yi said.

The results were revised following Samsung's adoption of International Financial Reporting Standards (IFRS) from this year, the company said.

Its semiconductor business had 1.96 trillion won in operating profit, while that of its LCD unit reached 490 billion won. Its telecommunication division, which is in charge of handsets, clinched 1.1 trillion won in profit for the quarter.

Shares of Samsung Electronics rose 2.91 percent to end at 849,000 won on the nation's main bourse.