Samsung's Q2 Hit by Weak DRAM Market

Samsung Electronics Co. Ltd. saw 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 (dynamic RAM) chips.

The company said operating profit was 910 billion won (US$985 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 percent to 14.6 trillion won.

"Despite the dire business environment, such as the precipitous fall of DRAM (dynamic RAM) prices and seasonality, we have posted a decent result in Q2," said Chu Woosik, head of investor relations at Samsung, 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, said Chu, is that the DRAM market is already starting to show signs of a turn-around, thanks to interest in Windows Vista PCs, which require more memory. During the remainder of the year the market for DRAM chips is expected to be strong, he said.

Strong demand for Apple Inc.'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 is 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 expects to ship more than 150 million phones this year, up from its previous target of 133 million.

The LCD (liquid crystal display) business enjoyed brisk business and Samsung shipped a record 2 million displays in the 40-inch and above class. Sales rose by 17 percent and operating profits surged 290 percent.

Looking ahead, Chu said Samsung expects 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."

Samsung Q2 Revenue table (in trillions of won)

Q2 2006 Q2 2007 Year-on-year growth (drop)

Semiconductor 4.42 4.26 (4 percent)

Memory 3.32 3.08 (7 percent)

System LSI 0.52 0.65 25 percent

LCD 2.85 3.34 17 percent

Telecommunication Network 4.28 4.50 5 percent

Mobile Phone 4.04 4.23 5 percent

Digital Media 1.66 1.45 (13 percent)

Digital Appliance 0.77 0.95 23 percent

Total Revenue 14.11 14.63 4 percent

Source: Samsung Electronics Co. Ltd.

Samsung Q2 Operating profit table (in trillions of won)

Q2 2006 Q2 2007 Year-on-year growth (drop)

Semiconductor 0.98 0.33 (67 percent)

LCD 0.07 0.29 290 percent

Telecommunication Network 0.41 0.35 (13 percent)

Digital Media (0.06) (0.06) -

Digital Appliance - - -

Total Operating Profit 1.42 0.91 (36 percent)

Source: Samsung Electronics Co. Ltd.