SDI Posts First Profit in Seven Quarters on Batteries

By Kevin Cho

July 28 (Bloomberg) -- Samsung SDI Co., the world's second- largest maker of plasma displays, posted its first profit in seven quarters as record sales from rechargeable batteries offset falling prices of flat screens.

Second-quarter net income was 49.6 billion won ($49 million), compared with a loss of 138.1 billion won a year earlier, Suwon, South Korea-based SDI said today in a statement. Profit beat the 300 million won loss median estimate of seven analysts surveyed by Bloomberg. Sales rose 43 percent to 1.64 trillion won.

SDI said this month it's reorganizing its unprofitable display operations as the company shifts its focus on rechargeable batteries, its only profitable business. The company plans to boost spending for the battery division and last month agreed to form a venture with Robert Bosch GmbH to produce batteries for hybrid cars from 2010.

``With the restructuring, the company's earnings visibility has become clearer and expanding the battery business seems to be a positive move,'' said Jeff Kim, an analyst at Hyundai Securities Co. ``SDI will have new opportunities.''

Samsung SDI shares rose 0.2 percent to close at 84,300 won on the Korea Exchange, after earlier falling as much as 3.3 percent before the company reported earnings.

Including overseas affiliates, operating profit, or sales minus the cost of goods sold and administrative expenses, was 10.8 billion won, compared with a loss of 137.4 billion won a year earlier. Analysts in the survey projected an operating loss of 10.3 billion won.

Battery Boost

SDI's battery shipments rose 36 percent on demand from notebook computers, the company said today. SDI maintained its forecast that second-half industry demand for lithium-ion batteries will rise 20 percent from the first six months.

Average prices of SDI's batteries probably rose 47 percent in the second quarter because of a supply shortage, according to James Kim, an analyst at Lehman Brothers Holdings Inc. in Seoul.

SDI said today its share of the rechargeable battery market will rise to 19 percent this year from 16 percent in 2007 and raised its shipment target of lithium-ion batteries by 3.9 percent to 530 million cells for 2008.

In May, SDI said it will invest 106.8 billion won to boost production of batteries to meet demand. SDI will set up a venture with Bosch in September and the two companies plan to jointly invest about $500 million in the entity named SB LiMotive over the next five years.

The company plans to boost sales to 10 trillion won by 2013, driven by its battery division and expanding into fuel cell and solar cell businesses, SDI said in a statement today.

Plasma Losses

SDI posted a record loss in 2007 as prices of plasma screens declined on competition from brighter liquid-crystal displays. LG Display Co., the second-largest LCD maker, and Taiwan's AU Optronics Corp. this month reported higher profits as demand for computer screens drove up prices.

Average prices of SDI's plasma panels probably fell by 18 percent in the second quarter from a year earlier, according to Lehman's Kim. Prices will decline 18 percent this year after sliding 31 percent in 2007, according to Kim.

Intensifying competition with LCDs will probably keep SDI's plasma panel business unprofitable until the current period, according to J.J. Park, an analyst at JPMorgan Chase & Co., said last month.

Samsung Electronics Co., the world's largest maker of flat- screen televisions and the largest shareholder of SDI, said this month it will manage SDI's plasma-display operations as part of a reorganization of the unprofitable business.

Organic Screens

SDI is also betting on so-called active-matrix organic light emitting diode screens to improve earnings. SDI, the world's largest maker of organic displays, plans to double production of AM-OLED screens this year after beginning production in October.

Last week, Samsung Electronics and SDI said they agreed to form a venture to jointly make organic displays. SDI will spin off its AM-OLED operations to set up Samsung Mobile Display and Samsung Electronics plans to invest 938.5 billion won for a 50 percent stake in the venture.

Separately, SDI said last month it plans to invest about 552 billion won until June 2009 to increase production of the organic screens. AM-OLED displays are brighter, thinner and use less power than liquid-crystal displays, according to SDI.

To contact the reporter on this story: Kevin Cho in Seoul at kcho2@bloomberg.net