Samsung Electronics on Friday reported a record high operating profit and net profit for the second quarter, driven by strong sales of memory chips and LCDs, but it warned that stiff competition in consumer electronics means it may not be able to maintain profitability at current levels.
The company is considered a technology industry bellwether because it is the world's largest producer of several products, including flat-screen TVs, DRAM, NAND flash memory chips and LCD screens, as well as the second-biggest mobile phone vendor. Its strong performance in the second quarter, which ended June 30, follows a string of glowing reports from technology industry leaders, from Apple to Intel.
Samsung said its operating profit reached 5.01 trillion Korean won (US$4.22 billion) in the second quarter, while sales rose 17 percent year-on-year to 37.89 trillion won. The operating profit figure beat Samsung's previous high of 4.41 trillion won in the first quarter of this year. Net profit at the company rose 83 percent to 4.28 trillion won.
"In the second quarter, our component businesses performed very strongly, yet it was a more challenging quarter for our [electronics] businesses,” said Robert Yi, a vice president at Samsung. While chips and LCDs did well for the company, competition in mobile phones, flat panel TVs and other consumer electronics hurt.
"With intensified competition throughout the digital media and mobile industries going forward, it may become a challenge to maintain current profitability levels," he said..
The company sold 63.8 million mobile phones during the quarter, up 22 percent from last year, but average selling prices dropped due to the increased competition, Samsung said in a statement. The company's mobile phone shipments also declined slightly compared to the first quarter due to weaker phone shipments to Europe, a sign sovereign debt concerns on the continent spread to consumers.
Looking ahead, Samsung sees continued challenges in its mobile phone unit due to intensifying competition, said Hwan Kim, vice president of the company's mobile communications business, during a conference call.
Samsung anticipates that smartphones will continue to dominate the handset landscape in the second half of this year due to the release of new designs, "especially Android phones", it said in a statement. Samsung plans to launch more smartphones, including a range of mid-end smartphones, in the third quarter to increase its share of the lucrative market.
The company expects revenue at its network equipment business to increase due to higher sales of mobile WiMax equipment in Asia.
The world's largest TV maker struck a positive note for flat panel TVs, including new products.
Samsung said it has sold 500,000 3D-capable TVs since launching its lineup in March. The company shipped 9.02 million flat TVs in the second quarter, noting strong growth in developing markets and increased sales of its LED TVs.
The third quarter may not be as strong as normal for flat TVs because so many people just bought new sets to watch the World Cup soccer tournament, the company said, but it still predicted 20 percent year-on-year growth during the third quarter. It also forecast continued strong sales of its LED TVs and 3D TVs.
Samsung, also the world's largest memory chip maker, said DRAM prices will likely rise in the third and fourth quarters due to normal seasonality, since the going-back-to-school and holiday seasons tend to prompt people to buy new computers, which is where most DRAM chips end up. DRAM supply constraints, however, should ease as some makers are able to increase production. DRAM prices peaked this year in April amid strong PC sales, but have fallen during the summer months, which is normal because many consumers go on vacation or wait until the end of the summer before buying a new laptop for school.
DRAM has been just one of the problem components for the PC industry this year. Tight supplies have led to higher component prices, which have resulted in the first increases in PC prices in 5-years.
Samsung announced aggressive capital spending plans to build new factories to produce chips, LCD panels and other products this year. The company said total capital expenditures for the first half of 2010 reached 9.2 trillion won, representing 51 percent of the total of 18.2 trillion won in spending planned for 2010. Samsung will also spend 8 trillion won on research and development, for total spending this year of over 26 trillion won.
The company has maintained a bullish view of the global electronics industry in 2010 and said it plans to hire 10,000 new workers this year.