(5th LD) Samsung Electronics beats Q1 estimate, but holds cautious outlook

Samsung Electronics Co., the world's leading computer memory chipmaker, reported better than expected first-quarter earnings on Friday as its mobile handset business offset a slump in its chip and LCD divisions.

The company's net profit reached 619 billion won (US$458 million) in the January-March period, down 72 percent from a profit of 2.19 trillion won a year earlier, as weak demand dragged down prices amid the economic downturn, the company said in a regulatory filing.

The first-quarter earnings, however, were much better than the 150 billion won predicted earlier by the market.

Sales increased 8.5 percent to 18.57 trillion won over the cited period, while operating profit dropped to 148 billion won from 2.15 trillion won, it said.

Shares of Samsung Electronics dropped 5.58 percent to close at 592,000 won on the Seoul bourse.

Samsung, which had booked its first quarterly loss of 22 billion won in the previous quarter, is expected to see its business performance improve down the road as the battered memory chip sector shows signs of emerging from a severe downturn, according to analysts.

"The first-quarter earnings were better than expected, and its earnings will improve down the road as production cuts may help ease an industry glut and price gains," said Kwak Byeong-yeol, an analyst at KB Securities.

Industry-wide output cuts have helped drive up prices of dynamic random access memory (DRAM) chips by more than 60 percent this year, while prices of flash memory chips have more than doubled.

"We are in talks to raise DRAM prices supplied to our customers, but the price gains will not be big," said Lee Myung-jin, an official with Samsung Electronics' investor relations team.

He said DRAM prices will rebound in the second quarter, but fall slightly in the third quarter due to seasonal factors.

"The chip and LCD sectors should ease the supply glut, but it appears the sectors are nearing their bottom," Lee said, adding that the pace of recovery will not be as fast as expected.

Samsung, also the world's largest maker of liquid-crystal displays and the No. 2 maker of mobile phones, has been hurt by sinking demand for semiconductors, mobile phones and other consumer electronics as the global economic recession has sapped demand for these products.

Its semiconductor business suffered an operating loss of 670 billion won in the first quarter, the second straight quarterly deficit, hit by falling demand and weak prices. That compared with a profit of 193 billion won a year earlier.

Its LCD division also suffered an operating loss of 310 billion won, compared with a profit of 1 trillion won a year earlier, as demand for TVs and computers slumped during the recession, driving down panel prices.

But Samsung's information and telecommunication business line logged an operating income of 1.12 trillion won, boosted by robust sales of mobile handsets, which offset a slump in its other business divisions.

Samsung said the average selling price for its handsets rose 2 percent from the fourth quarter of last year on increased sales of high-end products, though the total volume of sales remained flat.

Despite better than expected results, Samsung said the second-quarter outlook remains uncertain.

"Despite the industry downturn, our first-quarter earnings were better than expected," Lee said. "But it is still premature to be optimistic about an upturn in demand and the economic cycle."

Samsung said its LCD production facility will operate at full capacity in the second quarter to meet rising demand, but remained cautious over the outlook for the second half of the year.

Lee said that Samsung invested 600 billion won in upgrading and maintaining production facilities. "But we don't have any concrete investment plan for the year," he said.

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