Samsung Electronics on Friday reported a record profit, but warned that slowing demand and growing competition may erode its profitability in the third quarter. Its shares slumped 2.06 percent at yesterday’s close.

The Korean company said that its second-quarter operating profit jumped 14 percent to 5 trillion won from the previous quarter, driven by robust prices of chips and displays that helped offset sluggish performance of its handset and TV businesses. Samsung is the world‘s No. 2 handset vendor, and the No. 1 maker of TVs, flat-screen panels and memory chips.

“Although the third quarter is usually a high season for IT products, the possibly of global demand weakness persists due to the European financial crisis ... In the sets businesses, with the intensified competition within the industry, it may become a challenge to maintain the current profitability level,” Robert Yi, chief financial officer of Samsung Electronics, said during an earning conference call. 

Analysts were divided over whether Samsung would be able to report another record high profit in the third quarter, but they agreed that Samsung’s profit growth would slow significantly during the period.

“I previous expected a slight increase in Samsung profit in the third quarter, but I am currently adjusting my forecast,” Jay Kim, an analyst at Mirae Asset Securities, said.

He expected Samsung’s chip business to further increase its profits, saying its cost competitiveness would cushion the impact from the falls of chip prices. Its LCD business profit is expected to fall amid slow demand, he said.

Samsung’s launch of its flagship smartphone Galaxy S would help the recovery of its handset business, which suffered a sharp drop in profitability in the second quarter. However, it remains to be seen how much its TV profitability would improve given intensifying competition and slowing demand, he said.

In the second quarter, Samsung’s chips and displays were the main earnings drivers, generating more than 70 percent of its total profit.

Its semiconductor division reported 2.94 trillion won in operating profit, while its display unit posted 880 billion won in profit. The impressive results came as supply constraints persisted for both chips and displays, boosting prices, Samsung executives said.

A Samsung executive expected global DRAM prices to turn weaker starting at the end of the third quarter, with increasing supply combined with slowing demand.

In contrast, Samsung‘s TV and handset divisions posted sharp profit declines, hit by the European debt crisis and smartphone woes. Its handset division saw a profit slump of 43 percent to 630 billion won from the previous quarter, while its TV unit saw profit fall 31 percent to 360 billion won during the period.

Samsung’s handset division posted an operating profit margin of 7.2 percent, hit by its late response to the growing smartphone market. Samsung said it will try to raise its handset profitability to more than 10 percent in the third quarter.

Meanwhile, Samsung seeks to achieve a 40 percent share in the global DRAM market this year, from the current 36 percent, while maintaining its share in the NAND flash chip market at the current 41 to 42 percent levels.

Samsung also said it will increase its investment to more than a previously announced 18.2 trillion won, planning to invest more on AM-OLED facilities, Ri said.

By Jin Hyun-joo (hjjin@heraldm.com)