Samsung Posts Surprise Net Profit

Jul 20 2001

SEOUL - South Korea's Samsung Electronics posted a better-than-expected second quarter net profit of 880 billion won after telecom revenues helped offset the impact of diving chip prices. Its second quarter net was down 29 percent from 1.24 trillion won in the first quarter, but beat market expectations of 600 billion won to 800 billion won.

"Increased earnings from telecommunications compensated for a sharp decline in chip sales and such a trend may help it later this year," said Jon Chong-hwa, an analyst at Salomon Smith Barney. Samsung had a 400-billion-won jump in telecom sales, including wireless handsets, which helped cushion it against an 800-billion-won tumble in semiconductor revenue. Telecom sales exceeded chip and digital product revenues though the three were similar and were trailed by home appliance sales which accounted for 11 percent of Samsung's total. The world's largest computer memory chipmaker was expected to earn a net 3.8 trillion won this year, a Multex Global Estimates forecast by 23 analysts showed. Diving chip prices and demand were blamed for a 63 percent plunge in earnings before interest and taxes to 600 billion won, down from 1.61 trillion won EBIT a quarter earlier. Samsung said profits at affiliates including Samsung Card and Samsung SDI <06400.KS> contributed 250 billion to 300 billion won. Samsung holds more than 50 percent of the unlisted credit card unit and over 20 percent in the world's top television and computer display maker. CHIPS COULD HURT SECOND HALF Still, Samsung made money on chips in the second quarter, something its major competitors are failing to do in the sector's worst-ever downturn. But analysts cautioned Samsung may also be hit hard later this year if chip prices did not rebound.

"Due to a sustained slowdown in the PC market, DRAM supply and demand imbalance may continue until the fourth quarter," Samsung chip marketing manager Kim Il-ung told reporters. "The second-half prospect for the memory chip sector is not clear." Samsung reaped 260 billion won in EBIT from its chip unit, or 43 percent of its total EBIT. Domestic rival Hynix Semiconductor posted operating losses, or negative EBIT, of 168 billion won from chip sales or 63 percent of its negative EBIT of 266 billion won. U.S. chip giant Micron Technology, the world's second largest memory chipmaker, last month posted a $313-million loss for the quarter to May 31. Despite a fall in chip prices, Samsung said it was standing firm on not cutting production, a step Hynix took this week by closing its U.S. plant for six months.

"But if every other chipmaker agreed on an output cut, there is no need for us not to consider the measure," Samsung vice president of investor relations Chu Woo-sik said in a conference call. Samsung decided to reduce capital expenditure to 5.1 trillion from 6.1 trillion won. The one-trillion-won cut would be made to planned investment in its semiconductor business, which accounts for 86 percent of its total capex plan. Hynix cut its 2001 capex plans on Thursday to 600-800 billion won from one trillion won. Samsung Electronics shares closed down 1,000 won at 176,000, compared with a 1.47 percent slide in the benchmark index. Hynix ended at a fresh lifetime low of 1,400, down 7.6 percent. Samsung said on Friday it had drawn up plans to repurchase up to 500 billion won of its own shares by year's end to help boost share prices, but the exact amount and timing would depend on its cash flow and other business conditions. Samsung is up 11 percent in the year to date, while Hynix has shed 65 percent.