By Marie-France Han and Rhee So-eui
SEOUL (Reuters) - Samsung Electronics Co Ltd (005930.KS: Quote, Profile, Research, Stock Buzz) posted a 44 percent drop in quarterly net profit after sharp declines in flat-screen display and memory chip prices, and forecast a bleak outlook, sending its shares down 14 percent.
The world's top maker of memory chips and liquid crystal displays (LCDs) is battling a lengthy downturn in the once-reliable memory chip market and rapid margin deterioration in the flat-screen sector, along with slowing sales of consumer electronics.
"The market environment in the third quarter proved challenging amid rising costs and a downturn in the global economy," said Chu Woo-sik, Samsung executive in charge of investor relations.
"We foresee the coming months to be an even more challenging period."
Chu said he did not expect a recovery in the memory chip market until the second half of next year.
Samsung is the flagship of the country's top conglomerate and is considered a bellwether of the South Korean economy.
Samsung's chip unit, which just two years ago was its biggest source of profit, remains a drag on the company's outlook.
"Semiconductor prices have been in the doldrums and there is no recovery in sight as of yet. That is the biggest risk," said Jay Kim, an analyst at Hyundai Securities.
Operating margins at Samsung's semiconductor unit fell to 5 percent from 6 percent in the second quarter and 18 percent a year ago. But the figure was much better than analysts' predictions for a low single digit or break-even profit margin.
Samsung is the only major chipmaker to post a profit this quarter in a sector ravaged by a downturn that started in early 2007.
The results came after Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) halved its annual profit forecast, sending its shares 14.1 percent lower on Friday.
Shares in Samsung, South Korea's biggest company worth about $45 billion, ended at its weakest level since 2004.
The company's July-September net profit fell to 1.22 trillion won ($870.5 million) from 2.19 trillion won a year ago and 2.14 trillion won earned in April-June. The results were helped by a battered local currency, which at the end of the third quarter had lost 24 percent over the year.
The net profit figure was in line with a forecast for a 1.23 trillion won net profit by 11 analysts polled by Reuters.
For a graphic on Samsung's profit, click here
Revenue rose to 19.26 trillion won from 16.68 trillion won a year ago and 18.14 trillion the previous quarter.
For more details: here
A CHANCE FOR SAMSUNG?
Samsung said it expected prices of dynamic random access memory (DRAM) chips to fall by about 30 percent in 2009, a slower rate than this year and last.
"I believe the fourth quarter of this year will be a bottom for Samsung," said Song Myung-sup, an analyst at HI Investment & Securities. "Although the global economic outlook is still uncertain, it will be able to distance itself from its weaker rivals and see an improvement in earnings next year.
Samsung's display division margins fell to 8 percent from the second quarter's 21 percent amid a rapid deterioration of the market due to oversupply.
In Taiwan, smaller LCD rival Chi Mei Optoelectronics (3009.TW: Quote, Profile, Research, Stock Buzz) posted a surprise net loss of T$3.97 billion against a market forecast of a T$5.3 billion profit.
Samsung, second only to Nokia (NOK1V.HE: Quote, Profile, Research, Stock Buzz) in the handset market, sold a record 51.8 million mobile phones, up from 45.7 million in April-June.
However price pressures drove the handset division margins to a smaller-than-expected 7 percent from 13 percent in the second.
Samsung's operating profit for the third quarter fell to 1.02 trillion won, widely beating expectations for 823.5 billion won. The figure still represented a steep drop from 2.07 trillion won a year ago and the second-quarter profit of 1.89 trillion won.
($1=1401.5 Won)
(Additional reporting by Miyoung Kim and Park Ju-min)
(Editing by Jonathan Hopfner and Anshuman Daga)
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