Samsung profits up but sales lag

By Staff and wire reports

SEOUL, South Korea -- Samsung Electronics on Monday posted a better-than-expected net profit for the first quarter.

But its sales dropped, and analysts expect earnings to fall in the second quarter.

Faced with a slump in chip demand, Samsung said it will chop more than $900 million from its 2001 capital spending.

Help from a weak won

Samsung, the world's largest computer-memory chipmaker, announced a preliminary net profit of $944 million ($1.24 trillion won) for the first three months of 2001.

That's up almost 7 percent from the previous quarter.

Sales declined 5.5 percent, to 8.6 trillion won. That's down from 9.1 trillion won in the fourth quarter of 2000.

The company recorded a 1.6 trillion won net profit on sales of 7.87 trillion won in the first quarter of last year.

The company had earlier predicted sales growth would slow to the single digits this year, from 30 percent last year.

"The results beat most market expectations," said Jon Woo-jong, an analyst at SK Securities. "Its diversified product portfolio and the won's depreciation against the dollar helped cushion a blow from weak chip prices."

Samsung said in January it had based its 2001 business plan on an exchange rate of 1,050 won per dollar. But the Korean won was trading at 1,312.9 to the dollar on Monday, shadowing a weaker yen.

Samsung shares finished up 1.1 percent at 227,000 won, slightly ahead of the Kospi. Korea's benchmark index closed up 0.84 percent at 560.94.

Another sales drop foreseen in Q2

Analysts expect another decrease in sales next quarter, as chip prices resume their move downward. That, they feel, will cut into Samsung's earnings.

"Chip prices are sliding again from a short rebound seen early this year," said Jay Kim at ING Barings in Seoul. "You'd better say chip prices were fluctuating rather than they were bottoming out.

"Samsung's Q2 net profit will definitely fall," said Jay Kim at ING Barings in Seoul. "The question is not if but how much worse."

In an earlier forecast, Kim predicted it would decline to 800 billion to 900 billion won.

Analysts feel Samsung sales will improve in the second half of the year, when seasonal factors will lead to a boost in demand.

Samsung predicts a chip shortage will start in the third quarter of 2001.

Samsung is the world leader in making 64-megabit dynamic random access memory chips, or DRAMS, for personal computers.

But the personal-computer market has slumped. DRAM chips were selling at $2.30 to 2.45 apiece on Friday, way off a 52-week high of $9.22.

In response to the slowdown, Samsung said it had cut its 2001 facilities investment to 6.1 trillion won ($4.65 billion) from an earlier plan of 7.3 trillion won.

A Samsung spokesman said the 931.9 million (1.2 trillion won) in cuts would come from its semiconductor business, which accounts for 35 percent of sales.

Samsung's operating profit - before interest and taxes - improved to 1.6 trillion won, up 10 percent from the previous quarter.

Reuters contributed to this report.

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