Samsung Electronics the world's top maker of memory chips, posted lower-than-expected quarterly profit and faces a tough second half with a sluggish chip market and lower margins in flat screens and mobile phones.
Shares in the South Korean group, valued at about $85 billion, tumbled more than 4 percent on Friday.
Samsung, also the world's top maker of liquid crystal display (LCD) screens, acknowledged it was unlikely to achieve a sharp recovery in its third quarter results.
Chu Woosik, executive vice president of investor relations, told a conference call that visibility for the memory chip market outlook was "quite low."
"Recovery in the memory chip sector will not come anytime soon as the macro backdrop remains weak, though it will not get worse from here," said Jay Kim, an analyst at Hyundai Securities.
Next year looks equally daunting, with the global economic slowdown set to impact all consumer electronics, from flat-screen TVs to mobile phones and personal computers.
April-June net profit rose 51 percent to 2.14 trillion won ($2.12 billion) from 1.42 trillion won last year during a market slump for dynamic random access memory (DRAM) chips used mainly in personal computers. Samsung earned 2.19 trillion won in January-March.
Analysts had predicted net profit of 2.30 trillion won.
Operating profit for April-June rose to 1.89 trillion won from 911 billion won a year ago, below the 2.08 trillion won predicted by analysts. First-quarter operating profit was 2.15 trillion won.
Weak Chip Outlook
The operating margin in Samsung's semiconductor unit rose to 6 percent from 4 percent in the first quarter, helped by technological advances, but was still a far cry from the 31 percent profit margin posted in late 2006.
Makers of DRAM chips had hoped that spending cutbacks and a demand pickup ahead of the gift-giving season would trigger a second-half recovery, but the prospects for a significant rebound are fading. Many analysts predict the tailspin could drag on into the second quarter of 2009.
On Wednesday, Powerchip and Nanya Technology, Taiwan's two largest DRAM makers, posted their fifth straight quarter of losses.
In another sign of the industry's distress, world No.2 chip maker Hynix on Thursday said it would suspend production at its U.S. plant and consider selling it.
Steep price drops have also hurt earnings from NAND flash memory chips, used in portable gadgets. Samsung said it expected NAND oversupply to persist through the second half.
Samsung's display division posted a strong quarter, helped by robust sales of flat-screen TVs. The division's margin was 21 percent versus the first quarter's 23 percent.
Samsung, second only to Nokia in the handset market, sold 45.7 million phones in April-June, a slight dip from 46.3 million in January-March. Mobile margins also eased to 13 percent from the first quarter's 15 percent.
April-June revenue rose to 18.14 trillion won from 14.63 trillion won a year ago.
Samsung shares tumbled nearly 5 percent, while the broader KOSPI stock index was down 1.8 percent.
The stock had jumped 4.6 percent the previous day on talk of a share buyback, but Samsung instead announced a modest interim dividend.