Profit at Samsung Electronics fell by a quarter as weak earnings at its flat screen unit dragged, underlying the conglomerate's struggle to return to last year's record profit.

A bleak outlook for computers and TVs and a wobbly global economy is overshadowing robust sales of Samsung's new version of its flagship Galaxy S smartphone, which has emerged as a major competitor to Apple's blockbuster iPhone.

Samsung, one of the first major global technology firms to kick off quarterly earnings, is expected to have become the world's top smartphone vendor in the second quarter, ending Nokia's more than 10-year reign.

"(The forecast) is slightly better than what the market had been expecting as many had been slashing their forecasts recently due to losses from the LCD division," said Kim Young-chan, an analyst at Shinhan Investment Corp.

"It will be again smartphones which will lead earnings recovery in the second half of this year, although competition may get toughen again in the third quarter when Apple introduces a new iPhone."

The company boasts a market capitalisation of $134 billion, bigger than the combined value of Sony, Nokia, Toshiba, Panasonic and LG Display.

Samsung, which worked out how to make black and white TVs in the 1970s by tearing apart Japanese models, overtook Sony as the world's most popular consumer electronics brand in 2005.

Today, Samsung estimated its quarterly operating profit at 3.7 trillion won (€2.3 billion), compared with a consensus forecast of 3.9 trillion won by analysts.

That would be down 26 per cent from a record 5.01 trillion won a year ago and up 25 per cent from the preceding quarter.

The profit was expected to show a downside surprise of 6 per cent to 3.6 trillion won, according to Thomson Reuters SmartEstimates, which places more weight on recent forecasts by top-rated analysts. Samsung will provide detailed quarterly results later this month.

"I think the operating profit figure is not that bad and the stock market may not view this as a negative signal," said Chun Nam-Joong, fund manager at Consus Asset Management. "However, in the third quarter, it's difficult to expect the LCD business to swing to profit and the memory chip business may not grow strongly."

In its mainstay chips business, Samsung is expected to miss its second-quarter shipment guidance of a mid-teen percentage rise for DRAM chips used in computers and a more than 30 per cent gain for NAND chips used in mobile phones.

Demand for personal computers is slowing and smartphone production was crimped by the Japanese earthquake in March.

The company's handset business, which saw its profit halved just a year ago due to a lack of compelling products to compete against the iPhone, staged a strong comeback to become its major profit centre.

Its Galaxy S II has sold more than 3 million units since its debut in late April. Some analysts expect the phone running on Google's Android platform to become Samsung's best-ever model with potential sales of 20 million units this year.

Samsung might have sold 19 million smartphones in the second quarter in total and should easily beat its 2011 smartphone sales target of 60 million units, analysts said.

The company's biggest drain on earnings remains its underperforming Liquid Crystal Display business. The operation vies for the top position with local rival LG Display . Each company has about one-quarter of the global market, which is grappling with oversupply and weak demand.

Reflecting a growing urgency to turn around the business, Samsung recently named the head of its semiconductor business to take over from LCD chief Chang Wonkie and combined the underperforming operation with the chip division.

"The LCD business itself is likely to report a loss in the third quarter again. But factoring in earnings from Samsung Mobile Display, it will likely post a slight profit," said Kang Jeong-won, an analyst at Daishin Securities.

The restructuring is also aimed at improving business relations with its component customers, as Samsung is roiled in escalating legal disputes with Apple over their flagship smartphone and tablet devices.

This week, Apple, Samsung's biggest customer, filed a US trade complaint to block Samsung from importing a variety of electronics devices, less than one week after Samsung sought to stop imports of Apple's popular iPads and iPhones.

Reuters