By Marie-France Han and Rhee So-eui
SEOUL (Reuters) - Samsung Electronics Co Ltd <005930.KS> posted a 44 percent drop in quarterly earnings after sharp declines in prices of flat-screen displays and memory chips, and forecast a grim outlook, sending its shares down 10 percent.
The world's top maker of memory chips and liquid crystal displays (LCDs) is battling a lengthy downturn in the once-reliable memory chip market and rapid margin deterioration in the flat-screen sector, along with slowing sales of consumer electronics.
"The market environment in the third quarter proved challenging amid rising costs and a downturn in the global economy," said Chu Woo-sik, Samsung's official in charge of investor relations.
"We foresee the coming months to be an even more challenging period."
Samsung Electronics is the flagship of the country's largest conglomerate, and is considered a bellwether of the South Korean economy.
Samsung's chip unit, which just two years ago was its biggest source of profit, remains a drag on the company's outlook.
"Semiconductor prices have been in the doldrums and there is no recovery in sight as of yet. That is the biggest risk," said Jay Kim, an analyst at Hyundai Securities.
Operating margins at Samsung's semiconductor unit fell to 5 percent from 6 percent in the second quarter and 18 percent a year ago. But the figure was much better than analysts' predictions for a low single digit or break-even profit margin.
Samsung is the only major chipmaker to record a profit this quarter. The sector, mired in a downturn that started in early 2007, is unlikely to recover before the second quarter of 2009.
The results came just a day after Sony Corp <6758.T> halved its annual profit forecast as the financial crisis and faltering global economy hurts demand for its cameras and flat-screen televisions.
Shares in Samsung, South Korea's biggest company worth about $45 billion, lost 9.5 percent by 0450 GMT after plunging over 10 percent to its weakest level since 2004 in a broader market <.KS11> down 9 percent.
The company's July-September net profit fell to 1.22 trillion won ($870.5 million) from 2.19 trillion won a year ago and 2.14 trillion won earned in April-June. The results were helped by a battered local currency, which at the end of the third quarter had lost 24 percent over the year.
The net profit figure was in line with a forecast for a 1.23 trillion won net profit by 11 analysts polled by Reuters.
Revenue rose to 19.26 trillion won from 16.68 trillion won a year ago and 18.14 trillion the previous quarter.
For more details: http://www.samsung.com/us/aboutsamsung/ir/ireventpresentations/e
arningsrelease/downloads/2008/20081024_conference_eng.pdf
A CHANCE FOR SAMSUNG?
Samsung said it expected prices of dynamic random access memory (DRAM) chips to fall by about 30 percent in 2009, a slower rate than this year and last.
"I believe the fourth quarter of this year will be a bottom for Samsung," said Song Myung-sup, an analyst at HI Investment & Securities. "Although the global economic outlook is still uncertain, it will be able to distance itself from its weaker rivals and see an improvement in earnings next year.
Samsung's display division margins fell to 8 percent from the second quarter's 21 percent amid a rapid deterioration of the market due to oversupply.
Samsung, second only to Nokia
However price pressures drove mobile margins to a smaller-than-expected 7 percent from 13 percent in the second.
Samsung's operating profit for the third quarter fell to 1.02 trillion won, widely beating expectations for 823.5 billion won. The figure still represented a steep drop from 2.07 trillion won a year ago and the second-quarter profit of 1.89 trillion won.
($1=1401.5 Won)
(Additional reporting by Miyoung Kim and Park Ju-min)
(Editing by Jonathan Hopfner and Anshuman Daga)
