Samsung doing well, yet remains cautious

Despite its earnings surprise, Samsung Electronics yesterday offered a cautious outlook for the memory chip sector, saying the industry was unlikely to achieve a swift recovery.

Samsung swung back into profitability in the first quarter as solid performance by its handset division offset losses from its chip and flat-panel businesses.

Hynix Semiconductor also reported improved numbers yesterday.

The company narrowed its losses from the previous quarter, helped by a stabilization in memory prices. Samsung and Hynix are the world`s No. 1 and No. 2 makers of memory chips.

Due to significant output cuts, DRAM prices stabilized and NAND prices surged this year, spurring hopes for the recovery of an industry dogged by oversupply.

A Samsung executive warned that it is "dangerous" to expect a quick recovery in the industry, citing excess supply and weak demand.

"It appears that the DRAM and LCD sectors are near the bottom. But we have a different perspective from the market in terms of the pace of the recovery. We see a gradual recovery, but some analysts expect a V-shaped rebound and memory firms` profits to significantly improve in the second quarter or third quarter," Robert Yi, Samsung`s vice president and head of investor relations, said at a press briefing.

Cho Nam-seong, senior vice president of Samsung, also said: "Uncertainties for supply and demand remain in the DRAM market."

Samsung also said that DRAM prices may go down in the third quarter after marginally rising in the second quarter.

"DRAM prices are likely to drop in the third quarter due to oversupply. Third quarters see rises in DRAM prices traditionally," Lee said.

DRAM contract prices remained flat for two months before climbing 6.8 percent to $0.94 in the second half of April.

Hynix posted a brighter outlook at an earnings conference call, saying DRAM prices could rise nearly 50 percent from the current level in the third quarter although they are expected to rise slightly in the second quarter.

Analysts said they saw a moderate improvement in the profits of Samsung and Hynix.

"I see a gradual improvement in Samsung`s profits in the coming quarters this year," said Park Hyun, an analyst at Prudential Securities. "Marketing costs for handsets are expected to decline in 2009, although they may increase in the second quarter," he said.

"Hynix is expected to continue to narrow its losses." Park added that a potential increase in output among Taiwanese firms could derail Hynix`s recovery.

Samsung`s January-March operating profit of 470 billion won was well above market expectations of a quarterly loss, but this was well below last year`s profit of 2.57 trillion won.

The earnings surprise was driven by Samsung`s strong handset business and cuts in marketing costs and other expenses, analysts said.

Its telecommunications division - which includes its handset business - posted an operating profit margin of 12 percent, a sharp improvement from the previous quarter`s 2 percent.

Hynix also posted a smaller-than-expected operating loss of 515 billion won in the first quarter compared with the previous quarter`s 802 billion won operating loss. This is Hynix`s sixth straight quarterly loss, caused by steep falls in memory prices.

By Jin Hyun-joo



(hjjin@heraldm.com)