Samsung profit misses estimates, fuels demand concern

By Jun Yang
(c) 2010 Bloomberg News
Thursday, October 7, 2010; 3:33 AM

Oct. 7 (Bloomberg) -- Samsung Electronics Co., Asia's biggest maker of semiconductors, flat screens and mobile phones, reported profit that missed analysts' estimates, fueling concern the global recovery in demand for electronics is stalling.

Third-quarter operating income rose 14 percent to 4.8 trillion won ($4.3 billion), the Suwon, South Korea-based company said in a statement today. That lagged behind the 5.03 trillion won average of 11 analyst estimates compiled by Bloomberg. Sales gained 11 percent to 40 trillion won.

Samsung fell the most in more than four months, leading shares of electronics makers lower in Asian trading, as the results added to evidence consumers are holding back on spending. Sony Corp., the world's third-largest television maker, said this week it's concerned growth in demand may slow.

"Demand for technology products is pretty weak," said Lee Jin Woo, a fund manager with KTB Asset Management Co., which manages $9.9 billion in assets in Seoul. "Investors need to monitor the magnitude of the demand recovery."

The International Monetary Fund yesterday lowered its forecast for U.S. growth this year and 2011, predicting a "slow" rebound restrained by a lack of consumer spending. The world's largest economy will grow 2.6 percent this year, down from the 3.3 percent projected in July, Washington-based IMF said. The world economy will expand 4.2 percent next year, slower than its forecast of 4.3 percent three months ago.

The weak demand and an oversupply of chips, panels and televisions may further pull down prices, hurting profitability at Samsung and rivals including LG Display Co., analysts said.

Samsung declined 2.9 percent to 770,000 won at the close of trading in Seoul, the largest fall since May 17, while South Korea's benchmark Kospi stock index slipped 0.2 percent. Information-technology stocks in the region fell 0.4 percent as a group, the biggest drag on the MSCI Asia Pacific index today.

"Concerns about the fourth quarter will get more serious," said Kim Young Joon, an analyst at LIG Investment & Securities Co. in Seoul. "It's becoming increasingly certain profitability from semiconductors will worsen and television margins will stay bad because of prices."

Shares of business-computing companies such as VMware Inc., the largest maker of virtualization software which helps companies use computers more efficiently, tumbled in the U.S. yesterday on concerns that sluggish economic growth will crimp technology demand.

Elpida Memory Inc., the world's third-largest maker of computer-memory chips, said this week slowing personal-computer demand could damp chip prices and cause the company to miss earnings forecasts.

With television manufacturers likely to cut prices to boost sales, LG Display may report a loss in the fourth quarter, wrote Peter Yu, a Seoul-based analyst at BNP Paribas Securities (Asia) in a note today. Yu cut his rating on the stock to "reduce" from "hold."

Samsung's operating profit may be 200 billion won higher or lower than today's preliminary estimate when audited results are published later this month, Samsung said. The company, also the world's largest maker of televisions and displays and the second-largest maker of mobile phones, didn't provide net income figures and a breakdown of divisional earnings.

Profit at the display division probably tumbled more than 60 percent to 392 billion won, while earnings at the digital- media unit fell 73 percent to 252 billion won, according to a survey of seven analysts by Bloomberg News before today's announcement. Prices of Samsung LCDs used in computers and TVs fell 7.8 percent in the third quarter, according to estimates at Royal Bank of Scotland Group Plc.

Profit at the semiconductor business almost tripled to 3.31 trillion won, according to the survey. Higher sales at the company's most profitable business, driven by demand for chips used in digital devices such as Apple Inc.'s iPhone, and a cut in production costs helped compensate for a decline in prices, the analysts said.

Samsung's mobile-phone division likely earned an operating profit of 1.04 trillion won during the third quarter, little changed from a year earlier, according to the survey.

Samsung, which introduced the Galaxy S smartphone in June, has sold 5 million units of the handset and aims to sell another 5 million during the rest of the year, the company said in a statement on Oct. 6.

The company also plans to sell phones that let consumers browse the Internet and watch movies using Microsoft Corp.'s Windows Phone 7 operating system this year in the U.S., Europe and Asia, Samsung said on Oct.1. Samsung this year introduced its Galaxy Tab tablet computer to take on Apple's iPad.

© 2010