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Samsung Profits Slide on Economic Slowdown

Steep declines in the price of some of Samsung Electronics' major products pushed quarterly profits down and worse could be on the way, the company said Friday.

Operating profit for the period was 1.5 trillion won (US$1 billion), down 38 percent on the same period a year earlier, while sales were off 4 percent at 30.3 trillion won. Profitability declined across the board with its semiconductor sector recording a 78 percent drop in operating profits and its digital media business recording a loss for the three-month period.

"Overall our third quarter results were impacted by worsening market conditions resulting from a general slowdown in the world economy," said Chu Woo Sik, head of Samsung's investor relations department, in a conference call with analysts.

The semiconductor business was hit hard by sharp drops in the price of DRAM and NAND flash memory chips, the spot price of which fell 17 percent and 35 percent respectively during the quarter. Samsung is a major manufacturer of both DRAM, which is used for computer memory, and NAND flash, which is used in memory cards and a wide range of portable consumer electronics products.

Samsung's other major components business, that for LCD (liquid crystal display) panels, recorded lower revenues and a 57 percent drop in profit on the back of weak demand from its customers, who are cell phone, computer and TV makers. Demand was lower not just because sales are slowing but also because consumer electronics companies are reducing stock levels in anticipation of a harsher market.

In the telecommunications sector, Samsung shipped a record 51.8 million cell phone handsets during the quarter but profits slid 7 percent. Despite the lower profits Samsung expects to continue growing market share through the rest of the year to snag around 17 percent of the global cell-phone market from its current share of 14 percent, said Chu.

Among digital media products, which include finished televisions and other consumer electronics products, Samsung said it expects to gain share here as well. However price competition in the industry will likely affect profits. For the quarter, the digital media group sank 50 billion won into the red and was the only of Samsung's main divisions that recorded a loss.

Looking ahead Chu said Samsung remains cautious and warned that the usual bump in its business due to year-end holiday sales might not amount to much this year.

"It seems the seasonality for this year is pretty weak," he said. "We foresee the coming months to be an even more challenging period."

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