Samsung says third-quarter to top consensus as phones boom

Samsung says third-quarter to top consensus as phones boom

Stock Market Predictions

SEOUL (Global Markets) - Samsung Electronics said its quarterly profit should top the most bullish market forecasts, with smartphones becoming its main profit engine despite intense competition from bigger rival Apple.

Indeed, analysts expect Samsung to report record profit from handset sales in the third quarter and overtake Apple as the world's biggest smartphone vendor in unit terms.

The South Korean firm estimated its quarterly operating profit at 4.2 trillion won ($3.5 billion) versus a consensus forecast of 3.4 trillion won by analysts surveyed by Thomson Global Markets I/B/E/S. That would be down 14 percent from a year ago but up 12 percent from the preceding quarter.

The estimate released on Friday was higher than even the most bullish street view of 3.95 trillion won. Detailed earnings for July to September will be released later this month, Samsung said.

"Samsung's estimates are far better than expected," said Park Jong-min, a fund manager at ING Investment Management. "Its telecommunications business is seen very positive as shipments of smartphones and other high-end handsets expanded."

Investors are looking for signs the telecoms business can sustain strong growth for the year-end holiday season as its flagship Galaxy line of smartphones and tablets squares off against Apple's new iPhone, which goes on sale next week.

Stellar growth and strong profit margins from its telecom business mark a big transformation for a company, which has relied for years on its mainstay computer memory chips to boost profit. It had a negligible share of the smartphone market until early last year.

Samsung shares held steady on Friday, while the broader market rose 2.6 percent, an underperformance that analysts blamed on the prospects for a tougher fourth quarter owing to weak prices for memory chips and flat screens. However, Samsung shares had risen sharply in September as the wider market fell.

Earnings at the world's biggest technology firm with sales of $130 billion last year, are set to slide to 3.4 trillion won in the fourth quarter, consensus estimates show.

Profit from Samsung's telecoms division is widely expected to top earnings from the semiconductor business at the world's biggest memory chip maker.

Analysts say Samsung is one of the best placed companies to deliver something fresh and exciting to rival Apple, which has released a string of big-hit products in the past two decades.

It already makes the closest competing tablet by sales to Apple's iPad.

Samsung sold 19 million smartphones in the second quarter and shipments are expected by analysts to have risen to more than 28 million units in the third quarter compared to the 60 million units Samsung is targeting for 2011.

Samsung sold about 1 million fewer smartphones than Apple in the second quarter.

It plans to release its first smartphone based on the latest version of Microsoft's mobile operating system this month, while a 5.3-inch screen Galaxy Note, a hybrid of a smartphone and a tablet, is set to go on sale later this year.

Samsung leads a pack of companies selling phones on Google's Android operating system.

"The Galaxy S II probably played a key role in boosting the company's earnings and it will continue to do so pretty much unchallenged, until Apple unveils a better new version of iPhone," said Kyung Woo-hyun, a fund manager at Daishin Asset Management.

Samsung, which worked out how to make black and white TVs in the 1970s by tearing apart Japanese models, has become a top global brand over the past decade.

It boasts a market value of $118 billion, much bigger than the combined value of Sony Corp, Nokia, Research In Motion, Toshiba and Panasonic Corp.

Samsung's shares have fallen 5 percent over the past three months versus a 12 percent drop in Apple's shares.

APPLE CHALLENGER

Expectations for further momentum in Samsung's smartphone business grew after Apple's newest iPhone, unveiled this week, left investors and Apple's fans wishing for more than a souped-up version of its previous device introduced more than a year ago.

"I previously thought Apple's new iPhone would slow Samsung's handset earnings momentum, but there was no iPhone 5, and the iPhone 4S will not be a burden on Samsung in the fourth quarter," said Ahn Seong-ho, an analyst at Hanwha Securities.

But an intensifying legal battle with Apple over patents and designs threatens to dent growth of Samsung's handset and component business. Apple is also Samsung's biggest customer, buying mainly chips and displays.

"I am very surprised at the (profit) numbers. I am guessing either a particular lineup of products with higher margins sold well, or cost cutting measures were aggressively implemented," said James Song, an analyst at HI Investment & Securities.

Some analysts expected one-off gains such as reduced provisioning costs relating to royalty payments to Microsoft over smartphones and tablets using Android, or a cheaper won currency to boost profitability.

The South Korean won tumbled 9.4 percent against the dollar in the third quarter, making Korean products cheaper to overseas consumers.

Chips and flat screens are underperforming as consumers delay buying TVs and computers in a slowing global economy. This has pushed down prices of key components.

Prices of dynamic random access memory (DRAM) chips used in PCs tumbled about 50 percent in the third quarter and many analysts, including those at Citi and UBS, believe Samsung was the sole profitable DRAM maker in the third quarter.

Major global technology companies from Hynix Semiconductor to LG Display and Sony Corp are expected to report operating losses from their core businesses in July-September.

($1=1191 won)

(Additional reporting by Hyunjoo Jin and Jungyoun Park; Editing by Jonathan Hopfner and Anshuman Daga)

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Chipmaker Micron hit by weak PC sales, stock slumps

Chipmaker Micron hit by weak PC sales, stock slumps

Stock Market Predictions

SAN FRANCISCO (Global Markets) - Memory chipmaker Micron Technology (MU.O) posted quarterly results below expectations and warned of low visibility in a weak consumer PC market, slamming its shares.

Boise, Idaho-based Micron's stock had already slumped 25 percent since the end of April due to worries about lackluster PC sales and potential steep losses in an antitrust trial against Rambus (RMBS.O).

Micron's poor results on Thursday pushed its shares down 12.9 percent in after-hours trading and compounded negative sentiment in the tech sector after Oracle (ORCL.O) also posted quarterly profit that disappointed investors.

"We've all seen a softening of the desktop and notebook PC climate, partially offset by some growth around tablets," Mark Adams, Micron's vice president of worldwide sales, told analysts on a conference call. "At this point, it's hard for us to call too much further out in the future."

Micron Chief Executive Steve Appleton said inventories of DRAM chips used in personal computers were a bit higher than normal but that inventories of NAND chips -- used in tablets -- were tight.

Sales of PCs have grown at a slower pace than expected in recent quarters as some consumers worried about a tough economy hold off on large purchases and others choose Apple's (AAPL.O) iPad and other tablets over laptops.

This month, two prominent market research firms cut their forecasts for 2011 PC sales although PC chip giant Intel (INTC.O) said it was standing by its previous guidance for the quarter ending in June.

SHOCKING

Intel says developing countries like China are driving PC growth, but computers sold there often include fewer DRAM chips than models in the United States and Europe.

"Revenue is a bit shocking," said Avian Securities analyst Win Cramer of Micron's results. "Emerging market PC growth is good but they're not DRAM dependent."

Micron said revenue from DRAM chips was 7 percent lower in the third quarter compared to the previous quarter due to lower sales volume, a bad sign for competitors like Japan's Elpida (6665.T) and South Korea's Hynix (000660.KS).

Revenue from Micron's NAND chips, used in tablets, phones and other mobile devices, declined 5 percent, with prices down 5 percent.

"This market is jittery, worried about demand and macroeconomics," Stifel Nicolaus analyst Kevin Cassidy said of the after hours sell-off of Micron's stock.

He said that with Micron now trading below book value, he would continue to recommend the shares.

NAND and DRAM chips have long been commodities whose prices depend on supply and demand.

To reduce its exposure to market volatility, Micron is increasing its sales of specialty and high-end memory chips that go into solid-state drives and network equipment.

But as Micron's rivals also move into those niches, they in turn risk becoming commodities as well.

ANTITRUST UNCERTAINTY

Adding to uncertainty in the memory chip industry, a trial got underway on Monday in which Sunnyvale, California-based Rambus accuses Micron and Hynix of restricting the availability of memory chips using its technology starting in the 1990s in favor of chips with their own technology.

Rambus claims up to $4.38 billion but analysts say Micron's stock may have been punished too much since larger memory chipmaker Samsung (005930.KS) settled antitrust claims with Rambus last year for no more than $900 million.

Micron posted fiscal third-quarter revenue of $$2.139 billion, down from $2.288 billion in the year-ago period. Analysts on average expected revenue of $2.364 billion, according to Thomson Global Markets I/B/E/S.

Micron said its net profit was $75 million, or 7 cents a share in its fiscal third quarter, compared with $939 million, or 92 cents a share, a year earlier.

Shares of Micron were down to $7.34 in post-session trading after closing up 3.18 percent at $8.43 on Nasdaq.

(Reporting by Noel Randewich, editing by Bernard Orr)

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Elpida shares jump on bargain hunting

Elpida shares jump on bargain hunting

Stock Market Predictions

TOKYO (Global Markets) - Shares in Elpida Memory Inc (6665.T), the world's No.3 maker of dynamic random access memory chips, gained the most in two years on Friday amid a rise in DRAM spot prices and a view among investors that the stock had fallen too far in recent trade.

The shares, which rose 17.6 percent to 535 yen, had shed more than 40 percent in the month to Thursday's close, battered by Elpida's move to raise $990 million to finance its expansion in cutting-edge chips for smartphones and tablet PCs.

The stock, which hit a 2- year low this week, had seen its 14-day relative strength index drop to 21 as of Thursday, below the 30 line where stocks are deemed oversold.

A trader at a foreign brokerage said that a number of factors were lifting the shares, including Wednesday's news about Abu Dhabi state-owned fund Aabar joining South Korea's STX Corp (011810.KS) to bid for Hynix Semiconductor (000660.KS) and a rise in chip spot prices.

"Heavily shorted Elpida is being bought back on hopes that there will be some changes in the DRAM industry," he said.

The percentage of shares outstanding on loan at Elpida stood at a still-high 7.8 percent as of August 24 at 459 yen, down from a peak of 19.5 percent at the end of July.

Elpida has repeatedly disappointed long-term investors by raising capital and diluting shares to stay competitive against bigger South Korean rivals Samsung Electronics (005930.KS) and Hynix, which have more scale.

To stay relevant, it aims to take the lead in advanced 25-nanometre chips, which pack more power onto each sliver of silicon than existing DRAM chips, hoping to gain an edge in mobile memory used in tablet PCs and smartphones.

Friday's jump was the biggest single-day jump in two years for the chipmaker, which has lost 90 percent since its shares peaked at the end of 2006. Trading volume hit a six-week high.

Weak chip prices have weighed on chipmakers, with even market giant Samsung warning of fragile consumer demand.

Spot prices for DDR3 2Gigabit type DRAM chips were up 3.6 percent to $1.01 in Friday afternoon trade according to DRAMexchange, but analysts say prices are well below cost for many chip makers.

Elpida, like No.2 NAND flash chipmaker Toshiba Corp (6502.T), hopes Apple Inc's (AAPL.O) patent war with supplier Samsung will mean more sales to the maker of iPhones and iPads, sources have said.

(Reporting by Tokyo Newsroom; Editing by Nathan Layne and Chris Gallagher)

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