=DJ UPDATE:Samsung Elec 4Q Net Up 40%; Sees Better 1Q
By Yun-Hee Kim Of DOW JONES NEWSWIRES
SEOUL (Dow Jones)--Samsung Electronics Co. (005930.SE) reported Friday a better-than-expected 40% rise in fourth-quarter net profit, and forecast stronger results in the first quarter citing strength in its memory-chip business as well as an improvement in its cellphone operations.
The world's largest memory-chip maker and the world's third-largest cellphone maker by volume behind Finland's Nokia Corp. (NOK) and Motorola Inc. (MOT) of the U.S., forecast companywide sales this year will rise 11% to KRW63.60 trillion ($64.4 billion) from KRW57.46 trillion, as it bets on special demand ahead of this year's World Cup soccer games and winter Olympic Games.
Woosik Chu, senior vice president of investor relations said the business momentum is "solid" heading into 2006.
"Business-wise, it's very strong and the only area of little concern is LCD (liquid crystal display) in the first half, but we are quite confident that we will weather the difficulty quite nicely," Chu said on a conference call Friday with investors and analysts."The spirit within the company is to do a lot better than 2005 in terms of the bottom line."
For the quarter ended Dec. 31, 2005, Samsung posted a net profit of KRW2.56 trillion, up from KRW1.83 trillion a year earlier, while sales jumped 12% to KRW15.52 trillion from KRW13.90 trillion. For full-year 2005, Samsung posted a net profit of KRW7.64 trillion, down 29% from KRW10.79 trillion in 2004, while sales fell to KRW57.46 trillion from KRW57.63 trillion.
Samsung also said Friday its capital spending this year will fall to KRW9.23 trillion from KRW10.04 trillion in 2005, though it said it will boost research and development spending by 12% to KRW6.08 trillion from KRW5.41 trillion.
"I think they [Samsung] are being conservative and there's more room to be aggressive if the market remains favorable through the second half," said Sun Chung, an analyst at Nomura Securities in Seoul.
While the strengthening won against the U.S. dollar poses a risk this year for Samsung - a major exporter of consumer electronics - increasing demand for flat-screen TVs and the South Korean company's dominance in memory-chip production, thanks to its focus on higher margin specialty chips, should help its earnings growth momentum to further pick up in 2006, analysts said.
Samsung was expected to post a net profit of KRW2.16 trillion on sales of KRW15.37 trillion, based on the average forecast of 12 analysts surveyed by Dow Jones Newswires.
Fourth-quarter operating profit rose to KRW2.14 trillion from KRW1.53 trillion a year earlier, but fell well short of analysts' expectations of KRW2.37 trillion.
Chu said the company's bottom-line received a hefty boost from big gains in non-operating income due to the strong performance of its overseas affiliates. Still, its operating profit came in below market expectations as Samsung booked a provision of more than KRW130 billion to account for a change in its management compensation scheme.
Shares of Samsung, which had fallen as much as 2.3% earlier in the session, closed up 1.5% at KRW694,000. Its shares hit an all time high of KRW701,000 earlier this month.
Soft LCDs In 1H But Memory-Chips To Buoy Earnings
Samsung's strategy to focus on diversifying its product offerings in chips and liquid crystal displays helped the company weather weaknesses in other areas, analysts said. When prices of dynamic random access memory, or DRAM, chips were weak in the fourth quarter, the company shifted to produce higher margin NAND flash memory-chips widely used in MP3 players and digital cameras. In the liquid crystal display segment, Samsung focused more on producing LCD panels for TVs, where demand is much stronger.
"Samsung Electronics is no longer a cyclical stock," said Merrill Lynch analyst Simon Woo in a recent report. Samsung will be able to "reinvigorate its global leadership thanks to its already established competitiveness."
Il Ung Kim, vice president of the semiconductor business, said Friday he expects a "mild oversupply" of DRAM chips throughout the year. But NAND flash memory chips, widely used in MP3 players and digital cameras, are expected to continue to be in a shortage.
Samsung's operating profit from its semiconductor division in the fourth quarter rose to KRW1.62 trillion from KRW1.60 trillion a year earlier, while sales rose to KRW5.09 trillion from KRW4.78 trillion.
From the telecommunications business, Samsung expects a solid quarter in the current January to March period. The company expects average selling prices and shipments to rise from the fourth quarter, leading to a "significantly" higher profit margin as it introduces various high-end products including new slim phones.
The average selling price for Samsung's phones in the export market was $184 in the fourth quarter and it shipped 27.2 million units, up 29% year on year.
The telecom business - which includes cellphones and telecom equipment - posted an operating profit of KRW380 billion on sales of KRW4.95 trillion in the fourth quarter, up from an operating profit of KRW150 billion on sales of KRW4.32 trillion a year earlier.
For all of 2006, Samsung expects its cellphone shipments to rise 13% from last year to 115 million units, outpacing the global market demand growth expectations of 5% to 10%.
On the outlook for the LCD business, Yeong Duk Cho, vice president of the division said the LCD market this year globally is expected to be stronger than expected with solid LCD TV growth.
Still, Samsung expects a "soft" first half: "The recovery is expected to start from Q2 (second quarter) driven by the price elasticity and better PC sales," it said.
Samsung expects average selling prices for panels to decline 10% to 15% in 2006.
The company posted an operating profit of KRW400 billion from its LCD business on sales of KRW3.01 trillion in the fourth quarter, up sharply from an operating profit of KRW10 billion on sales of KRW1.95 trillion a year earlier.
-By Yun-Hee Kim, Dow Jones Newswires; 822-732-2165; yun-hee.kim@dowjones.com
-Edited by Jenny Paris
(END) Dow Jones Newswires
01-13-06 0350ET
Copyright (c) 2006 Dow Jones & Company, Inc.
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