Samsung Electronics has announed that its second quarter net profit fell by nearly half compared to the same period last year due to weak prices for two of its staple products, computer memory chips and flat-panel display screens.
The company, which is South Korea's largest electronics maker, reported net profit of 1.7 trillion won ($US1.6 billion as of June 30, the last day of the period being reported), a 46 per cent drop from the second quarter of last year. Sales were 13.6 trillion won, down 9 per cent from the same period a year earlier.
"The business environment remained quite challenging," vice-president of Samsung Electronics' investor relations division, Chu Woosik, said. "There was weak seasonal IT demand, we were plagued with high oil prices and the Korean won was quite strong."
Sales in the company's telecommunications business unit, which are mostly cell phones, accounted for the largest single portion of Samsung's sales at 33 per cent. Shipments of mobile handsets totalled 24.4 million units, compared to 22.7 million units a year earlier.
Average selling prices for phones dropped slightly due to price competition in the South Korean and North American markets, Chu said.
The telecommunications business recorded a 10 per cent drop in sales and 34 per cent drop in operating profits.
Samsung expects its total cell phone shipments for the year will be 100 million handsets and the global cell phone market will total 720 million handsets. Samsung's semiconductor business, which accounted for 31 per cent of all sales, saw sales drop 9 per cent and operating profit fall 49 per cent on the year.
The average selling price for dynamic RAM (DRAM) chips fell by about 20 per cent during the quarter, hitting results. However, after sharp price drops at the beginning of the quarter the DRAM price stabilised in June, Chu said. An expected increase in PC shipments coupled with stronger prices was expected to benefit Samsung in the second half.
Demand for NAND flash memory chips, of which Samsung is a major manufacturer, was strong in part thanks to new high-density MP3 players and digital cameras.
The company's liquid crystal display (LCD) business recorded a 14 per cent drop in sales and operating profit crashed 99 per cent. Like other businesses it saw price declines during the quarter and that led to weaker results despite an increase in unit shipments.
Demand was particularly strong for TV panels, unit shipments of which jumped 39 per cent, however they were still dropping in price, Chu said. Prices of notebook PC panels had already stabilised and those of monitor panels had started to increase.
Looking ahead, Chu said Samsung expected the second half of the year to be better than the first half.
"We do expect the profit level to [have bottomed] in the second quarter and gradually improve in the second half," he said.
"With the memory and thin-film-transistor liquid-crystal-display [TFT LCD] market poised for recovery in the second half, the third quarter could be an important turning point in the road for growth," Chu said. However, he warned that macro-economic uncertainty and price competition are negative factors that could affect performance.
"In telecom we expect to increase volume and average selling prices," Chu said. "We will start shipping more new 3G phones to additional carriers in Europe and various new launches, such as the V600 slim-phone. Currently slim phones are a big hit and out of stock in Korea."