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Samsung set to top record Q1 as recovery builds

Seoul, April 6, 2010

Samsung Electronics’ record three-month profit is set to be surpassed in the coming two quarters as the world's largest semiconductor and flat-screen TV maker rides a strong recovery in the tech sector.

Longer-term visibility on how such growth momentum will be sustained remains low, however, as Samsung and rivals increase investments in the panel display and chip businesses, threatening to re-start the industry's chronic over-supply cycle.

Better-than-expected demand for personal computers and limited supply growth by smaller players have lifted prices of Samsung's mainstay memory chip prices, boosting first quarter operating profits about sevenfold and pushing its shares to an all-time.

"I believe earnings will peak in the third quarter, but there's risk that DRAM (memory chip) prices' strength may continue and hit demand growth. DRAM supplies will also grow more toward the second half," said Song Myung-sup, an analyst at HI Investment & Securities.

"Among key challenges this year is the foreign exchange rate -- not only the won/dollar but also a falling won/yen, as competition with Japan is heating up on flat screen TVs."

Sony reported a first profit in five quarters in February as a restructuring at the Japanese electronics maker starts to pay off.

Samsung's strong guidance is the latest sign that a once-battered global technology industry is on a firm recovery path, helped by new product launches such as Apple Inc's iPad.

It follows solid results and trading comments from the likes of US-based Micron and local rivals LG Display and Hynix.

Shares in Samsung, also the world's No.2 mobile phone maker, fell 0.2 per cent to 868,000 won after hitting an all-time high of 875,000 won. The stock, valued at around $110 billion, has risen almost a fifth in the past five weeks on improving industry prospects and expectations of strong earnings.

Forecast-beating profits

"Samsung and its rival high-tech companies are being lifted by a global economic recovery and I think that will continue for April-June period," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Tokyo.

"I am hoping to see similarly solid guidance from US and Japanese makers that announce their outlook later... (but) compared with Sony and Panasonic, Samsung has been ahead in establishing profitable operations in emerging markets."

Samsung, which overtook Hewlett-Packard last year as the world's biggest electronics firm by revenue, estimated its January-March consolidated operating profit at a record 4.3 trillion won ($3.83 billion), higher than a consensus forecast for 4.1 trillion won polled by Thomson Reuters.

Sales were seen at 34 trillion won, in a 33-35 trillion won range.

Analysts expect profits from the chip division, which swung to a deep loss a year ago and then made a spectacular turnaround in the third quarter, would account for half of Samsung's consolidated first-quarter operating profit.

Detailed quarterly results are due later this month. They will be the first set of results since Choi Gee-sung took over as chief executive in December.

Choi, the former head of Samsung's mobile and flat screen divisions, is known as a marketing guru in Samsung. He literally built its semiconductor marketing in Europe from scratch in 1980s, reportedly boosting sales from just $1 million to $125 million in three years.

"Key risks are its television and handset business. Its TV unit is facing intense competition with Sony, as Sony is aggressively cutting its flat screen television prices. The lagging performance of its smartphone business will also weigh on its handset unit's profit margin," said an analyst, who declined to be identified.

Samsung competes with Nokia and LG Electronics in mobile phones. – Reuters




Tags: Samsung | profit | Seoul | Flat TV | Q1 | Choi |

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