Samsung makes a strong global financial recovery

Seoul: Samsung Electronics should beat its record first-quarter profit in the coming two periods as the world's largest semiconductor and flat-screen TV maker rides a broad global technology recovery.

Increased investments by Samsung and its rivals in the panel display and chip businesses, however, threaten to re-start the industry's chronic over-supply cycle and cloud its longer-term prospects.

Better-than-expected demand for personal computers and limited supply growth by smaller players have lifted prices of Samsung's mainstay DRAM and NAND memory chips and pushed its shares to an all-time high.

First-quarter consolidated operating profit jumped about sevenfold, Samsung said in earnings guidance yesterday, keeping it on track for a record full-year profit.

"I believe earnings will peak in the third quarter, but there's a risk that DRAM prices' strength may continue and hit demand growth.

DRAM supplies will also grow more toward the second half," said Song Myung-sup, an analyst at HI Investment & Securities.

"Among key challenges this year is the foreign exchange rate — not only the won/dollar but also a falling won/yen, as competition with Japan is heating up on flat screen TVs."

Return to profit

Sony reported a first profit in five quarters in February as a restructuring at the Japanese electronics maker starts to pay off.

Samsung's guidance for record first-quarter profit is the latest sign that a once-battered global technology industry is on a firm recovery path, helped by government stimulus spending around the world and new product launches such as Apple's iPad.

But a history of over-investment in the sector and Samsung's strong recent share gains have worried some market watchers.

"There'll be oversupply in both or either LCD and memory division and that will hurt profit again," said Robert R. Jakobsen, a Copenhagen-based analyst at Jyske Bank — alone among 44 analysts covering Samsung to have a "sell" rating on the stock, according to Thomson Reuters.

"Currently, the market is not factoring in that it's going to happen, but it is going to happen at some point. That's why I have a sell rating ... I'm just waiting for that opportunity to enter the stock again."

Shares in Samsung, also the world's No 2 mobile phone maker behind Finland's Nokia, eased 0.1 per cent to close at 869,000 won after hitting an all-time high of 875,000 won.

Improving industry prospects and expectations of strong earnings have helped add around $16 billion (Dh58.7 billion) to Samsung's market value, to $114 billion, in the past five weeks.