Chips, flat screens to drive up Samsung profit

Samsung Electronics is set to report on Friday that its fourth-quarter profit rose by about a fifth, driven by soaring demand for NAND flash chips and flat-screen panels for large televisions.

The outlook for 2006 remains upbeat for the world’s top memory chipmaker as demand for NAND chips used in digital cameras, mobile phones and handheld game players picks up, analysts say.

The South Korean company, the most valuable technology firm outside the United States, should also benefit from cost reductions linked to the launch of new liquid crystal display (LCD) production lines, offsetting sliding panel prices.

“NAND flash, handsets and LCDs will all push Samsung’s earnings higher in the first quarter of this year and will sustain the upward trend until 2008,” said Lim Hong-bin, an analyst at Mirae Asset Securities.

Profit margins on cell phones probably sagged in the fourth quarter as Samsung stepped up year-end inventory clearance amid heavy marketing costs.

But margins on flash chips and LCD TV panels are expected to show a rise, thanks to stabilizing prices and tight supplies.

Samsung, also the world’s third-largest mobile-phone producer, is set to announce a net profit of 2.23 trillion won ($2.2 billion) for the quarter ended Dec. 31, according to a median forecast of eight analysts polled by Reuters Estimates.

That would be up 22 percent from a year earlier and up 19 percent from the previous quarter. Sales are estimated to have risen 12 percent to 15.5 trillion won during the year, showing a rise of 6.6 percent from the third quarter.

Samsung’s net profit is likely to jump almost a third to 9.61 trillion won this year from a projected 7.23 trillion won in 2005, Reuters Estimates showed. But that would still fall short of the record 10.79 trillion won reached in 2004.

Shares in Samsung, which saw its market value top $100 billion for the first time this month, hit a record high of 701,000 won on Tuesday and rose 12 percent in the fourth quarter, against the wider market’s 13 percent gain.

Optimism over the outlook could be hit by worries about a strong won, which rose almost 3 percent versus the dollar in the fourth quarter and is now at an eight-year high.

Average contract prices of the mainstay 256-megabit DDR (double data rate) DRAM (dynamic random access memory) chips, used mainly in computers, slid more than 40 percent by the end of December from a year ago and were estimated to have fallen about 5 percent in the quarter, analysts said.

The company competes with Intel in the memory chip sector and with Japan’s Toshiba in NAND flash memory. Samsung’s semiconductor chief, Hwang Chang-gyu, said in November that DRAM prices should stabilize in the second half of 2006.

“Samsung should benefit from tight supply in two of its core businesses, flash memory and LCD TV panels, over the next two to three quarters,” Chung Sun, an analyst of Nomura Securities, said in a recent note.

Analysts expect the average selling price of NAND chips to show a decline of about 17 percent in the fourth quarter from the previous quarter, within the company’s forecast of a fall of up to 20 percent. Samsung, which controls more than half of the world’s

News source: Cnet

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