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Falling Chip Prices Dent Samsung's First-Quarter Profit

Samsung Electronics, the world's top memory chip maker, reported a 15% fall in first-quarter earnings on Friday, hurt by a steep drop in semiconductor margins and lower-than-expected shipments.

The April-June outlook remains grim as prices for DRAM (dynamic random access memory) chips, widely used in personal computers, are expected to start their recovery only in the middle of the quarter, analysts say.

Samsung, the most valuable technology company outside the U.S., posted January-March net profit of 1.6 trillion won (US$1.72 billion), down from 1.88 trillion won a year earlier -- slightly lower than a forecast for 1.66 trillion won from nine analysts polled by Reuters.

Samsung said overall margin at its chips division was 12% in the first quarter, down steeply from 31% in the fourth quarter and 26% year earlier.

"There were many difficulties in the first quarter due to sluggish demand for key products and a decline in their prices due to oversupply in a seasonally weak period," Samsung said in a statement.

"DRAM and NAND prices fell so sharply that they offset our cost reduction efforts," Lee Keon Hyok vice president of investor relations at Samsung said in a conference call.

Stronger-than-expected demand for DRAM chips in 2006 prompted manufacturers to switch more capacity to DRAM from less-profitable NAND flash, leading to an oversupply of DRAM, while demand linked to Microsoft's new Windows Vista operating system has been sluggish.

Samsung said shipments of DRAM chips rose a paltry 7%, due in part to a transition to a bigger wafer size in some of its fabrication lines.

Shipments of NAND flash chips rose a healthy 47% while prices in the industry fell almost 50% in the first quarter.

Samsung is South Korea's biggest stock with a market value of $94 billion. Revenue rose to 14.39 trillion won from 13.96 trillion a year ago.

The world's third-largest maker of mobile phones after Nokia and Motorola, sold 34.8 million handsets in the first quarter, a record after the 32 million sold in the fourth quarter. Mobile phone margins rose to 13% from the fourth quarter's revised 7%.

The world's biggest maker of large liquid crystal display (LCD) panels was hurt by low seasonal demand and weaker-than-expected shipments of monitor screens. Margin slid to 3%, versus 10% in the fourth quarter.