Chips drive Samsung's record profit

Samsung Electronics, Asia's biggest maker of semiconductors, flat screens and mobile phones, posted record earnings last quarter, fuelled by a recovery in demand for computer-memory chips that drove up prices.

Second-quarter operating income rose 87 per cent to 5 trillion won ($5.8 billion) from 2.67 trillion won a year earlier as sales gained 14 per cent, the Suwon, South Korea-based company said yesterday.

The profit beat the 4.74 trillion won average of 14 analyst estimates compiled by Bloomberg.

It's the second straight quarter of record profit for the maker of semiconductors that go into Apple's iPhones and Dell's computers, giving chairman Lee Kun Hee room to invest more on plants and equipment than any other technology company and widen Samsung's lead in chips. The electronics maker faces the challenge of sustaining earnings growth amid concerns prices may have peaked and Europe's fiscal crisis will persist.

"Earnings were very, very good, although we had already expected such an outstanding performance," said Kang Shin Woo, chief investment officer at Seoul-based Korea Investment Trust Management.

"Some investors are concerned that earnings may slow down from the fourth quarter."

Operating profit may be 200 billion won higher or lower than yesterday 's estimate after an audit, Samsung said.

Revenue climbed to between 36 trillion won and 38 trillion won, up from 32.51 trillion won a year earlier, it said. The company was projected to report sales of 37.9 trillion won, according to the average analyst estimate compiled by Bloomberg.

Operating profit will probably climb to a record 18.1 trillion won this year, according to 19 analyst estimates compiled by Bloomberg before the announcement.

"Samsung probably had better second-quarter earnings than first quarter because semiconductors offset poor performance in mobile phones," Kim Chang Yeul, an analyst at Mirae Asset, wrote in a report.

"Stable growth of chip demand and Samsung's confidence in expanding its market share may be confirmed in third-quarter earnings as well."

Global semiconductor sales are forecast to grow 27 per cent this year to US$290 billion, compared with a February projection of a 20 per cent gain, researcher Gartner said. The industry will show "continued growth" and exceed $300 billion in sales in 2011, it said.

The market for dynamic random access memory, or Dram, chips that serve as short-term memory inside computers or smartphones such as the iPhone, will surge 78 per cent this year, the research firm said.

The Dramexchange Index, which tracks prices of the most widely used computer-memory chips, rose 9.3 per cent this year as the global economic recovery spurred demand for electronics, lifting earnings for chipmakers.

Samsung's flat-panel division likely generated income of 757 billion won, triple the 250 billion won a year ago, according to the Bloomberg survey of analysts. Income at the digital media division that makes TVs may have declined 43 per cent to 660 billion won.

The average price of Samsung's mid- to large-sized LCDs probably rose 22 per cent in the second quarter and may climb 10 per cent for the year, a June 27 report by Song Myung Sup, an analyst with HI Investment & Securities, said. Samsung, the world's second-largest mobile-phone maker, aims to more than double its share of the smartphone market, helped by the introduction of the Galaxy S model, said Lee Donjoo, senior vice-president of the Mobile Communications Division.

The company's share of the more lucrative and faster-growing market for the devices is just 4 per cent, according to the company's own estimates.

"The new smartphone, Galaxy S, is likely to significantly reduce investors' scepticism on the company's handset business," said Bae Seung Chul, an analyst with Deutsche Bank.

The Galaxy S may sell more than 7 million units by the end of the year, which will probably create about US$3 billion of revenue in the fourth quarter, Bae wrote.

Samsung passed Nokia Oyj, the world's biggest maker of mobile phones, in shipments of low-end handsets to Western Europe in the first quarter, researcher IDC said.

WIDESCREEN PROFITS

* Samsung's second-quarter operating income rose 87 per cent to 5 trillion won.
* Revenue climbed at least 11 per cent to between 36 trillion won and 38 trillion won.

- BLOOMBERG