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Last Updated: Friday, 15 April, 2005, 10:32 GMT 11:32 UK
Samsung profits hit by low prices
Samsung logo and mobile phones
Samsung's profits were hit by falling prices
Samsung Electronics saw its profits halve in the first quarter as prices of goods, such as memory chips, flat TVs and computer screens, fell.

Earnings were also hit by losses at its credit card arm and tighter profit margins on its mobile phones.

Profit in the three months ending 31 March was 1.5 trillion won (797m; $1.5bn), down from 3.14 trillion won a year earlier.

In the same period, sales slid to 13.8 trillion won from 14.4 trillion won.

Industry jitters

Analysts fear that the global economic recovery may be slowing, forcing them to rework their profit forecasts for the technology industry as a whole.

Samsung's announcement follows a disappointing earnings report from computer giant IBM.

The investment sentiment surrounding IT shares is not good
Thomas Choi, PCA Asset Management

Mobile phone maker Sony Ericsson piled on the bad news for technology stocks on Friday when it announced that its profits and sales were worse than expected.

Samsung shares lost 2.1% on Friday, and its announcement hit technology shares across Asia and Europe.

"The investment sentiment surrounding IT shares is not good and I think that is affecting the market as a whole," said Thomas Choi, an analyst at PCA Asset Management.

Further problems?

Analysts forecast that Samsung will make a net profit of 8.44 trillion won in 2005, down from a record 10.79 trillion in 2004.

Samsung said that its problems are unlikely to dissipate in the current quarter.

Shopper viewing a flat screen television
We still expect a recovery in earnings, but this will happen in the third quarter
Kim Yung-min, Dongwon Investment

"The outlook is seen as quite challenging but we'll do our best to generate new revenues," Chu Woosik, Samsung's senior vice president said.

During the first quarter, the average selling price of DRAM memory chips slid by 16%, while the price of flash memory chips, used in products like Apple's Shuffle music player, dropped 9%.

Sales of both products had risen.

The price of liquid crystal display (LCD) screens dropped by 5% during the same period.

Samsung said its share of the mobile phone market slipped to 11% from 14% in the fourth quarter.

It warned that profit margins are likely to suffer as it spends more on marketing amid heightened competition.

Profit margins on mobile phones rose 17% in the first quarter. That is up from the previous three-month period, but down from the 26% level of a year earlier.

Currency moves

A gain in the South Korean won also weighed on earnings, making Samsung's products more expensive abroad and cutting the value of its US dollar earnings.

Samsung Card, the company's credit card business, had to put aside 700bn won to cover losses, further denting the balance sheet.

"Looking at the whole year we still expect a recovery in earnings, but this will happen in the third quarter," said Kim Yung-min, an analyst at Dongwon Investment Trust Management.

The company has a market capitalisation of about $83bn and is the most valuable technology firm outside of the US.


SEE ALSO:
Samsung profits soar 81% in 2004
14 Jan 05 |  Business
Samsung sees higher mobile profit
02 Dec 04 |  Business
Samsung hit by low screen prices
15 Oct 04 |  Business
Samsung continues profits drive
16 Jul 04 |  Business


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