Samsung cautious despite big profit

Samsung Electronics, the world's biggest maker of memory chips and LCD screens, joined other top tech names to rein in growing…

Samsung Electronics, the world's biggest maker of memory chips and LCD screens, joined other top tech names to rein in growing optimism over the sector's recovery, even after delivering best quarterly profit in 2-1/2 years.

Increasing competition from rivals such as Sony and LG Electronics and a potential rebound in the Korean currency may put pressure on Samsung's bottom line in the second half.

Thanks to a turnaround in its memory chip business and robust sales of TVs and mobile phones, along with a weak won, shares in the South Korea powerhouse have returned as an investor darling, rallying 50 per cent so far this year, beating the broader market's 33 per cent gain.

“Operating profit may be affected by a possible appreciation of the Korean won and intensifying market competition," said Robert Yi, Samsung's head of investor relations.

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LG Electronics, which competes with Samsung in handsets and TVs, said on Wednesday its profit margin in mobile phones could ease in the third quarter due to marketing costs and price pressure.

On Thursday, top software maker Microsoft posted the first-ever drop in annual sales of Windows and offered little hope for a turnaround until next year, while top handset maker Nokia last week cut its profitability and market share forecasts due to

tough competition at the top end of the market.

Samsung said it would be prepared for a possible slowdown in the LCD business, where it battles home rival LG Display, in late 2009 and early 2010, as price competition between TV set makers might heat up.

“LCD prices are unlikely to recover much due to signs of a supply glut," said Chang In-whan, chief executive and fund manager at KTB Asset management.

Still, some investors remain confident in Samsung's ability to withstand any challenge thanks to its sheer size and engineering advances.

In chips, Samsung looks poised to make the most of a nascent recovery in the global memory chip sector following a 2-year-old industry slump, as it enjoys a technological edge over rivals such as Elpida Memory.

Higher chip prices also helped Hynix Semiconductor post a sharply narrowed net loss on Friday. Hynix is expected to swing to an operating profit in the current quarter.

“Samsung Electronics will benefit the most from the current chip sector recovery as it is the market leader in the most advanced mass produced DDR3 chips," said Kim Sung-in, chief technology analyst at Kiwoom Securities.