Samsung's Q2 hit by weak DRAM market

Samsung saw a sharp fall in operating profits during the three months from April to June due to the weak market for computer memory chips.

Samsung Electronics recorded a sharp fall in operating profits during the three months from April to June due to the weak market for computer memory chips.

Prices of the chips, which are used for the main memory in personal computers, fell because supply exceeded demand. That hit Samsung because it's one of the world's largest makers of DRAM chips.

The company said operating profit was 910 billion won ($US985 million) as of the last day of the period being reported), which is down from 1.4 trillion won in the second quarter of 2006.

Net profit, which is a wider measure of profitability and includes subsidiaries and non-core operations, was down slightly at 1.42 trillion won from 1.5 trillion won a year earlier. Net sales were up 4 per cent to 14.6 trillion won.

"Despite the dire business environment, such as the precipitous fall of DRAM prices and seasonality, we have posted a decent result in Q2," head of investor relations at Samsung, Chu Woosik, said in a conference call with analysts.

Profits at Samsung's semiconductor unit dropped by two-thirds as a result of the weak DRAM market.

The good news, Chu said, was that the DRAM market was already starting to show signs of a turn-around, thanks to interest in Windows Vista PCs, which required more memory. During the remainder of the year the market for DRAM chips was expected to be strong, he said. Strong demand for Apple's iPhone and competing handsets are also expected to keep prices and profits for NAND flash memory, which is Samsung's other major memory chip product, strong.

Chu said Samsung was in talks with several consumer electronics companies about supplying chips for as-yet-unannounced portable media players with video.

Samsung's cell-phone handset business was one of the brightest spots in the results. The company shipped a record 37.4 million phones in the quarter thanks to the popularity of its thin "Ultra" edition handsets. The second quarter was the fourth consecutive quarter in which Samsung reported record sales.

As a result Samsung said it now expected to ship more than 150 million phones this year, up from its previous target of 133 million.

The LCD business enjoyed brisk business and Samsung shipped a record 2 million displays in the 40-inch and above class. Sales rose by 17 per cent and operating profits surged 290 per cent.

Looking ahead, Chu said Samsung expected the remainder of the year to be strong for the company.

"We are very optimistic about the second half," he said. "We are expecting all of our major business units to experience very high levels of demand and recovery starting from Q3. As a result of such an improvement coupled with our vigorous attempts to reduce cost, we are hoping to see significant improvements in the bottom line in Q3. We expect this nice recovery to last throughout the rest of the year."

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Martyn Williams

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