Samsung Q2 Profits Squeezed as Sales Rise

Samsung Electronics saw profits fall in the second quarter of the year while sales jumped, thanks to strong demand for memory chips and flat-panel displays, it said Friday.

South Korea’s largest electronics company said net profit in the April-to-June quarter was 1.5 trillion won (US$1.6 billion as of June 30, the last day of the period being reported), down from 1.7 trillion won in the same period last year. Sales were 4 percent higher at 14.1 trillion won.

The three-month period was characterized by weak seasonal IT demand, higher oil prices and appreciation of the Korean won, said Chu Woosik, senior vice president of Samsung’s investor relations department, in a conference call.

Strong demand for flat-panel televisions led the company’s display business sales to post a 34 percent jump on the year. However, fierce competition in the market drove down prices, squeezing profits. Despite being responsible for about a fifth of the company’s total sales during the quarter, only about five percent of Samsung’s total operating profit came from the liquid crystal display (LCD) business.

Samsung is the world’s largest manufacturer of LCD panels, and it has been investing aggressively in new factories to produce larger and cheaper panels. On Friday, it announced plans to invest 1.8 trillion won in building a new LCD factory with Sony.

Chip sales remained Samsung’s biggest business during the quarter. Demand for dynamic RAM chips for personal computers was strong while the NAND flash market was weak. Samsung’s semiconductor business recorded sales of 4.4 trillion won during the quarter and operating profits of 1 trillion won.

Sales of mobile phones fell by 4 percent to 4 trillion won during the quarter. Samsung shipped 26 million handsets and said demand was strong from new customers in India and the Middle East, and for replacement handsets in other markets. Looking ahead, the company expects to ship 115 million phones during the entire year.

The demand for LCD TVs also helped Samsung’s digital media division, which sold 1.2 million LCD TV sets during the quarter. The company gained a leading market share in Western Europe and has held the top spot in the North American market since May, said David Steel, vice president of marketing for Samsung’s digital media business.

Despite the higher sales of TV sets, the division recorded an operating loss of 60 billion won on sales of 1.7 trillion won, Samsung said.

"What we have achieved in Q2 was quite good, but things look much more promising in Q3 and beyond. The worst is behind us, we believe," Chu said.

-Martyn Williams, IDG News Service (Tokyo Bureau)

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