Samsung Q4 profit jumps, outlook cloudy

SEOUL: Samsung Electronics Co said its fourth-quarter profits almost quadrupled on strong mobile phone sales, but the technology giant called the outlook for 2003 "very uncertain". The results of the world's top memory chipmaker and third-largest handset maker missed profit and sales expectations, in part because earnings were hit by special employee performance bonuses of 375 billion won ($300 million).

"The numbers were disappointing," said Seo Jung-ho, a fund manager at Daehan Investment Trust Management. "Some were even expecting a positive earnings surprise. We will now keep a close eye on its first quarter performance." Samsung's stock initially fell on the earnings announcement, but later recovered to trade 1.1 percent higher at 327,500 won, as investors focused on the company's bullish hand-set sales target for the first quarter.

Samsung earned 1.5 trillion won in net profit for the three months ended Dec. 31, compared with 403 billion a year ago. Turnover was 10.72 trillion won, versus 8.5 trillion in the year-ago period. Analysts were forecasting 1.8 trillion won in net profits on 10.9 trillion won sales.

The group remains the only profitable major memory chip maker and it posted record full-year 2002 profits on its red-hot handset business. Rivals such as Micron Technology Inc of the United States and South Korea's Hynix Semiconductor Inc have suffered from a prolonged slump in chip prices.

But Samsung is not immune to falling prices for memory chips and flat panel screens. A stronger South Korean currency may also hurt the competitiveness of a company that derives two-thirds of its sales from outside the country.

"The 2003 outlook is very uncertain, although we expect a recovery in the second half," said Samsung investor relations executive Chu Woo-Sik. The company did say it will increase capital spending by 43 percent to 6 trillion won this year, mostly in its semiconductor business -- a marked contrast with a planned 25-percent cut in spending by top processor maker Intel Corp.

Mobile sales drive the growth path

Samsung's high-end phones -- sleek colour-screen mobiles with features such as cameras and voice dialing, have taken the market with a storm. The company said fourth-quarter handset sales edged down from the previous quarter, as government restrictions on handset subsidies hit domestic sales. Exports remained healthy and sales should rebound in the first quarter, Samsung said.

Samsung aims to sell 13 million mobile handsets in the first quarter, compared with 11.6 million in the fourth and 11.7 million in the third. "Its bullish handset sales target is helping ease fears over weak revenues," said Chung Chang-won, an analyst at Daewoo Securities.

Samsung has doubled its market share in two years, overtaking both Germany's Siemens AG and Sony Ericsson. The Korean handset maker vaulted into the world's number three position in 2002 from sixth in 2000, and is now knocking on the doors of market leaders Nokia and Motorola.

Samsung expects its average selling price of handsets to rise this year propelled by increasing sales of top-end colour and camera phones.

Grim outlook for the year

The outlook for this year is chequered by falling prices for memory chips and flat display panels. Analysts said the uncertain outlook for the chip industry was expected to haunt chip makers until the first half of 2003. "The key now is how much worse Samsung's first quarter will be against the fourth quarter," said Kim Tae-woo, a fund manager at Mirae Asset Management.

Samsung's transformation from a once stodgy South Korean conglomerate peddling inexpensive appliances to a global technology leader has come from huge investments in research and new plants for its chip operations. It also has boosted its output of products that use the chips, such as handsets and appliances.

Samsung said it expected to invest 6.0 trillion won in 2003 on capital expenditure, up from 4.2 trillion spent last year. Five trillion won of expenditure is planned to go into its semiconductor business. A counter-cyclical investment strategy has proved effective for Samsung during the past memory chip industry downturns, resulting in both market share gains and profitability.

The gap between Samsung and those trailing it -- Hynix, Micron and Germany's Infineon, has become even more pronounced with the recent migration of the industry standard to more advanced double data rate (DDR) synchronous dynamic random access memory (SDRAM) chips.

Extended weakness in chip prices caused Micron to report eight quarterly losses and Hynix to see nine quarterly shortfalls in the past 11 quarters. Samsung shares, South Korea's biggest issue with a market value of about $43 billion, gained 3,500 won to 326,500 won in afternoon trade. The stock has outperformed the broader market by 11 percent in the last six months.

© Reuters