Samsung promises better Q4

SEOUL: Samsung Electronics gave a bullish fourth-quarter outlook after delivering a forecast-beating 16% rise in third-quarter net profit, boosted by gains from its overseas plants and its flat screen joint venture with Sony. But its operating profit fell 13% as margins in its mainstay businesses — chips, flat screens and mobile phones — slipped from a year ago, despite improvement in performance from the previous quarter.

Samsung, the world’s top memory chip maker and third largest mobile phone producer, lifted its ’06 capital spending plan by 11% due to strong chip demand expected in ’07 and forecast another record handset sales in the fourth quarter. Shares in Samsung, the most valuable technology company outside the US, rose as much as 2.2% after it also forecast higher margins for liquid crystal displays (LCD) in the current quarter.

“Fourth-quarter prospects are good, as external factors look favourable. The currency situation is stable, oil prices are down, memory sales will be strong and handsets should be a hit,” said Michael Min, an analyst at Korea Investment & Securities.

Samsung’s memory chip division again fuelled the firm’s profits in the third quarter, with dynamic random access memory (DRAM) putting up strong numbers thanks to capacity limitations and solid demand for personal computers.
Samsung earned 2.19 trillion won ($2.29 bn) in net profit for the quarter ended September 30, compared with 1.88 trillion a year ago.

The result breezed past the 1.89 trillion won forecast by analysts. On the operating level, profit fell to 1.85 trillion won from 2.13 trillion a year earlier. “All of our business segments will show improvement in the fourth quarter,” Samsung senior vice-president of investor relations Chu Woo-sik told reporters.

After a bruising first half, during which its handset sector was hurt by the runaway success of Motorola’s clamshell RAZR phone, Samsung benefited from the success of a new series of ultra-sleek phones launched over the summer. Samsung, which competes with Nokia and Motorola, sold 30.7m mobile phones in the third quarter, a quarterly record and up from 26.3m in the second quarter. Profit margin in the handset division came in at 11% against 9.5% in the second quarter and 12% a year earlier.

Samsung’s display unit improved substantially from the second quarter thanks to the growing success of its alliance with Sony. Profit margin in the display unit rose to 5% from the second quarter’s 2.6%. Samsung boasted a profit margin of 26% in its chip division, up from the second quarter’s 22.2%.

“The DRAM business should continue driving earnings in the fourth quarter, as shipment growth and newer technology will offset an expected limited fall in prices,” said Park Hyun, an analyst at Prudential Securities.

The company said it expected the market for NAND flash memory chips, used in digital cameras and music players, to stabilise thanks to a slower fall in prices, with shipments up by 40-45% in the fourth quarter.

Samsung said it had revised up its capital investment plan for ’06 by 10.9% to 10.24 trillion won from 9.23 trillion won, with most of the extra funds going to expand the chip business amid expectations of strong demand in ’07. Shares in Samsung rose 10.1% in the third quarter, compared with a 5.9% gain in the wider market.