Samsung`s operating profit falls 26 pct. in 2nd quarter

Samsung Electronics` operating profit in this year’s second quarter fell 26 percent year-on-year due to poor performance in the company’s flagship semiconductor and LCD businesses.

In a preliminary report released Thursday, Samsung said it expects second-quarter sales to reach 39 trillion won (36.6 billion U.S. dollars) and operating profit to hit 3.7 trillion won (3.5 billion dollars). Compared to the same period last year, sales grew 2.9 percent from 37.9 trillion won (35.6 billion dollars) but operating profit dropped 26.2 percent from 5.14 trillion won (4.83 billion dollars).

Korea`s electronics leader posted 2.95 trillion won (2.77 billion dollars) in operating profit in the first quarter, leading to expectations of operating profit of 4 trillion won (3.8 billion dollars) in the second quarter.

○ Lackluster performance in LCDs and semiconductors

The lower-than-expected performance is blamed on the sluggish LCD business, according to industry experts. Since consumers seem reluctant to replace their old TV sets with new ones, the price of LCD panels, the key component of TVs, remains low.

Experts say Samsung’s LCD sector suffered an operating loss of around 200 billion won (188 million dollars) in the second quarter.

Despite the fall in DRAM prices, the company has done relatively well in semiconductors, however, thanks to cost competitiveness stemming from Samsung`s status as the world’s top maker of memory chips.

In semiconductors, Samsung is likely to post 2.1 trillion won (1.97 billion dollars) in operating profit in the second quarter, up 500 billion won (470 million dollars) from the previous quarter.

With the smartphone Galaxy S II selling well, Samsung`s telecommunication business is expected to post 1.5 trillion to 1.6 trillion won (1.4 billion to 1.5 billion dollars) in operating profit.

○ Disappearing IT momentum

With the inventories of global IT companies increasing in the wake of the March 11 earthquake in Japan, the price of memory chips grew between March and May. Such companies, however, began adjusting inventory last month.

A rebound in performance is expected in the third quarter due to increasing demand in run-up to the fall school semester and the Christmas season, but many experts say uncertainty abounds down the road.

Some even fear the evaporation of IT momentum that has driven Korea’s economic growth. According to data on June IT exports released Wednesday by the Knowledge Economy Ministry, due to higher mobile phone exports, IT exports last month reached 13.24 billion dollars, up 1.7 percent from the same period last year.

Outbound shipments of display panels fell for the fifth consecutive month in June, however, due to lackluster sales of full high-definition TVs and monitors and the fall of their unit costs.

Lee Min-hee, chief of the business analysis headquarters at Dongbu Securities, said, “The effect of new mobile phone brands and sales growth of organic LED will boost Samsung’s performance in the third quarter, but the company will have difficulty for the time being due to uncertain economic conditions in and out of the country."

kimsunmi@donga.com