By Kim Yoo-chul
Staff reporter
South Korean technology giant Samsung Electronics reported a record operating profit of 5.01 trillion won (about $4.23 billion) for the second quarter, driven by robust sales in computer memory chips and liquid crystal displays (LCDs).
Samsung executives have a cautious outlook for the remainder of the year, citing uncertainties such as the volatile nature of the chip and flat-screen markets, the increasing price competition in finished products like televisions and mobile phones, and the continuing economic turmoil in Europe.
The second-quarter operating profit, which shattered previous company records, marked an annual growth of 88 percent, while its revenue of 37.89 trillion won represented a 17 percent year-on-year increase. Net income was 4.28 trillion won for the April-June period, Samsung said in a filing, Friday.
"Our main goal for the second-half is profitability. We expect to face difficulties in maintaining our current level of profitability because of economic uncertainties and fiercer competition," said Robert Yi, Samsung's chief of investor relations, in a conference call.
Samsung, the world's largest technology company by revenue, benefits from its dual strength in parts and finished products ― the company is the world's largest maker for memory chips, LCDs and flat-screen televisions and trails only Nokia as the runner-up handset vendor.
Although its parts business has been picking up the slack in 2010, Samsung believes that the momentum may slow in the second half due to the uncertainties in the market and macroeconomic conditions.
LCDs and computer memory chips generated 76 percent of Samsung’s second-quarter operating profit, Samsung said. The company struggled in its other main markets, such as consumer electronics and mobile phones, affected by price competition and a weakening euro.
Samsung spokeswoman Leonor Lee said about 26 percent of the company's sales last year was generated from Europe. Sales in non-Korean countries accounted for about 88 percent of the company’s revenue last year.
Yi also said during the conference call that the company will increase its facility investment for the year, upping its previous budget of 18.2 trillion won, to flex a larger manufacturing muscle over its rivals and lay the foundation for new growth engines.
"The level of investment will be determined by market situations," Yi said without elaborating further. Samsung's spending on facilities reached 9.2 trillion won during the first-half of the year.
Cho Nam-seong, vice president of Samsung's semiconductor division, said that the company's global share in computer memory chips will expand to 50 percent by the end of the year, while its share of flash-memory will settle somewhere between 41 and 42 percent.
"We continue to forecast a healthy demand for digital products, such as tablet-style personal computers, smartphones and other mobile devices," he said.
One of the bigger concerns for Samsung is its lackluster performance in the lucrative market for smartphones, which provide higher margins than conventional phones.
Despite its status as the world's No. 2 mobile-phone maker, Samsung is reduced to an also-ran in the market dominated by Apple's iPhones and RIM’s BlackBerrys.
The revenue of Samsung's mobile-phone unit dropped 5 percent year-on-year during the second quarter to 8.05 trillion won, while its operating profit margin of 7.2 percent represented a significant decline from last year's 10.9 percent, shattering the company's vows of staying in the double digits.
Samsung’s main handset rivals Apple and Nokia reported operating profit margins of 27 percent and 9.5 percent, respectively, for the second-quarter.
"We were late in the market for premium smartphones and now this is resulting in lower margins and sales," said Kim Hwan, vice president of Samsung’s mobile-phone division during the conference call.
Smartphones account for just 4.5 million of the 63.8 million phones sold so far by the company, Kim said.
He hoped that the release of better devices, such as the Android-powered Galaxy smartphones and other phones that run on "Bada," Samsung's own mobile platform, will help to improve margins of his division for the remainder of the year.
Samsung has high hopes its latest gadget, the Galaxy S, which it plans to provide to 125 mobile carriers in 90 countries. Bada-based phones will be distributed 98 countries via 178 carriers, Kim said.
"We will sell 10 million Galaxy S and Bada phones by the end of the year. With these two strategic models, we hope to narrow the gap with our rivals," according to Kim.
Samsung's digital media division, which is in charge of all consumer electronics including televisions, also experienced a decline in profit.
Although revenue was up, thanks to growing demands for premium products like light-emitting diode (LED) backlit LCD televisions and three-dimensional (3D) televisions, the increasing price competition in the market eroded Samsung's profit.
"Samsung is getting credit for its solid business fundamentals. Although there are worries about oversupply in both the chip and LCD markets, the impact will be marginal," said Lee Seung-woo, an analyst at Shinyoung Securities.
Shares of Samsung Electronics lost 2.06 percent to end at 810,000 won on the nation's main bourse, KRX said.