Samsung beats expectations in tough market

Electronics giant Samsung has reported better than expected third-quarter results, boosted by sales of semiconductors and mobile phones. 

A global DRAM supply slowdown, which has pushed up prices, was a key factor in the company's strong performance in a tough market, analysts said today.

Samsung's quarterly net income rose to US$2.31 billion, an increase of 16 percent compared to the same quarter last year. Sales reached US$15.93 billion for the quarter.

"Our strategy of producing high performance, differentiated products into multiple end markets allowed us to power ahead and deliver solid third-quarter results in a challenging IT environment," said senior Samsung vice president Woosik Chu.

Operating profit was boosted by better than expected performance at Samsung's semiconductor division, which made some US$80 million more than anticipated during the quarter.

"The strong semiconductor results appear to be powered by robust performance of DRAM," said Jay Kim, an analyst at Hyundai Securities.

Samsung, one of the world's largest memory chip makers, shifted memory production facilities from older chips to higher-profit products like DDR2 memory.

This helped push DRam profit margins up by 3.7 percent compared to the previous quarter, according to data supplied by Samsung. The company plans to invest an extra US$1 billion to boost memory chip production capacity.

"The price of DRAM chips is expected to remain strong in the fourth quarter, and the demand for Nand Flash memory chips is expected to grow with the introduction of new products that require larger memory such as MP3 players, personal media players and handsets," the company announced.

"In addition, migration to the advanced process technology, in particular 60nm 8Gb Nand Flash technology, is expected to reduce manufacturing costs and improve profitability."

Although a glut of production has pushed Flash prices down this year, some analysts are optimistic about Samsung's efforts to switch Flash production to higher profit chips.

"Flash also seems to have a foothold for higher profit margins in the fourth quarter of 2006," said Kim. "We also expect to see a less steep Flash price decline in the fourth quarter."

While global mobile phone profits continued on a downward trend owing to price competition and market saturation, Samsung remained profitable in this sector and reported some encouraging news.

The company sold almost 31 million of its top-of-the-line 'Ultra edition' slimline mobile phone handsets in Europe during the quarter, recording an average profit margin of more than 11 percent on these products.

Despite a highly competitive display panel market, Samsung still managed to eke out a slim profit from its mammoth LCD sales operation.

The company reported US$167 million profit from US$3.13 billion in revenue generated by its LCD business worldwide. Competitor LG-Philips LCD reported a major loss earlier this month. 

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