South Korean electronics giant Samsung Electronics Co. said Friday its second-quarter net profit dropped over 10 percent from a year ago on sluggish mobile phone sales.
The world's third-largest mobile phone maker, however, forecast that business will turn around in the third quarter as market conditions for its core sectors would improve.
In the April-June period, net income amounted to 1.51 trillion won (US$1.59 billion), down 10.9 percent from a year ago, the company said in a regulatory filing.
Sales increased 3.8 percent year-on-year to 14.12 trillion won in the April-June period, while operating profit sank 14 percent to 1.42 trillion won, the company said in a regulatory filing.
The second-quarter bottom line is slightly below a market consensus of 1.59 trillion won.
"I expect business to turn around across the board in quarters to come, including the NAND flash memory, LCD and mobile phone divisions, as market conditions are expected to stabilize," said Chu Woo-sik, senior vice president of Samsung Electronics's investor relations section.
However, he cited a firmer local currency and rising oil prices as possible challenges that could affect the company's business in the second half.
Shares of Samsung Electronics closed down 2.67 percent at 584,000 won on Seoul's main bourse.
From three months earlier, sales rose 1.1 percent, but net income and operating profit were down 19.9 percent and 12.1 percent, respectively.
The company said the relatively poor second-quarter business performance was largely attributable to sluggish sales in its flagship business divisions, such as mobile handsets.
Samsung Electronics reported that its sales in the handset division fell 4 percent from a year earlier to 4.04 trillion won amid fierce competition that led to sharp price cuts. "Samsung Electronics failed to respond to the price cut trends in the global mobile handset markets by sticking to its premium business strategy," said Kim Young-joon, an analyst at Goodmorning Shinhan Securities Co., adding that the delay in launching new models is another reason for the bleak performance.
Sales in the communications sector also dropped 4 percent to 4.28 trillion won over the period, the company said.
Samsung Electronics, however, said sales of semiconductors and liquid crystal displays (LCDs), its two main businesses, gained 2 percent and 6 percent to 4.42 trillion won and 2.85 trillion won, respectively, from a year earlier.
The brisk performance in the LCD sector came despite rival companies' efforts to cut their production in the face of an oversupply that resulted in a drop in panel prices of more than 20 percent, it said. Earlier this week, LG.Philips LCD Co., the world's No.2 flat panel maker, reported a record loss of 322 billion won in the second quarter, a turnaround from a profit of 41 billion won a year earlier.
LG.Philips LCD Co. along with AU Optronics Corp. of Taiwan moved to cut production last month, citing mounting inventories, which prompted concerns that the LCD market could slow down.
Experts predicted Samsung Electronics' LCD business will gain more momentum in the latter part of the year as the panel prices are expected to stabilize thanks to a production cut by many market players including Taiwanese firms.
The view is in line with what the company's top executive predicted last month in a private meeting with reporters.
"I thought the recovery would occur in May or June this year. Although it could be delayed a couple of months, I expect the rebound to come in the third quarter," Lee Sang-wan, head of Samsung Electronics' LCD business division, told reporters.
He based his bright outlook for Samsung's LCD business on steady demand in its flat panel TV sector and Japan's Sony Corp., with whom the South Korean company dominates the global LCD TV market.
Samsung and Sony completed a joint plant for seventh-generation LCD panels in April 2004. It started full operation in October last year.
In a separate regulatory filing, Samsung Electronics said the two companies inked a deal to invest 855.5 billion won to jointly construct an eighth-generation LCD production line in South Korea to meet the rising demand for LCD panels.
Succeeding generation technologies allow manufacturers to produce larger panels at a cheaper price. The joint production line will churn out around 50,000 units a month when it commences operations in late 2007, the filing added.
Seoul, July 14 (Yonhap News)
Samsung Electronics Q2 earnings drop over 10 pct |
