Samsung chips lower, mobiles soar

Jean Yoon

SEOUL: Samsung Electronics Co Ltd, the world's top memory chip maker, said it expected a shortage of the chips throughout 2004, with inventories at low levels and supply constrained.

Samsung, which is also the world's third-largest mobile phone producer, said it expected to sell more handsets in the second quarter after shipping a record 20.1 million in the first quarter, driven by U.S. and Asian demand.

Smaller handset rival LG Electronics Inc also offered an upbeat outlook, saying it predicted its cellphone profit margins would improve in the second quarter, helped by a rise in shipments and sales of high-end handsets such as third-generation models.

"The supply limit is causing stable DRAM pricing in a slow season," Samsung said in a copy of a presentation for a global investor conference organised by Samsung Securities.

Prices of dynamic random access memory (DRAM) chips, used mainly for computer memory, have soared since the start of the year on tight supply as chipmakers switch to making flash memory and hit problems introducing new production technology.

The chip shortage was a key reason for Samsung's near tripling of profits in the first quarter, along with buoyant handsets and flat-screen businesses.

"A DRAM shortage will prevail in 2004. The market inventory is low and supply is constrained," the presentation said.

PREMIUM PRICES

The price of industry standard 256-megabit chips rose 43 percent in the first three months of the year to $5.29, according to chip broker DRAMexchange.com. "Contract price has increased for four months including May," Samsung said in the document.

Samsung charges a 10-20 percent premium for its chips over rivals because of its higher quality and long-term contracts with a broad customer base, analysts say.

Samsung said it expected to raise its annual mobile phone shipment target for 2004, currently set at 65 million units, although the company noted pressure on average selling prices was rising in some markets.

Samsung's record performance contrasts with downbeat forecasts from Nokia.

Nokia shares have slumped to around their lowest levels in more than five years after data from research group Strategy Analytics showed Nokia's market share fell to 29.2 percent in the first quarter from 34.9 percent a year earlier.

Samsung's market share rose one point to 13.1 percent.

LG, the world's fifth-largest cellphone maker, said it expected its handset operating profit margin would pick up in the second quarter. It suffered weak margins in the first quarter, hit by heavy inventories and a fall in prices for its cellphones.

(Additional reporting by Kim Miyoung)

©Reuters