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Columbian.com - Serving Clark County, WashingtonSamsung Profit Slumps on Price-Fixing Fine
Oct 14, 6:12 AM EDT
By KELLY OLSEN
AP Business Writer

SEOUL, South Korea (AP) -- A hefty, multi-million dollar price-fixing fine and lower chip prices took a big bite out of Samsung's third-quarter earnings, with net profits plunging 30 percent from the same period the year before, the South Korean company said Friday.

Samsung Electronics Co., the world's largest memory chip maker and a major consumer electronics firm, said it earned 1.88 trillion won, or $1.8 billion, in the three months through Sept. 30, down from 2.69 trillion won in the same period a year earlier.

The results for South Korea's biggest company by market capitalization were worse than expectations. A survey of 10 analysts by Dow Jones Newswires predicted Samsung's profit would total 1.97 trillion won ($1.89 billion).

The earnings result came a day after U.S. federal officials in Washington said Samsung will pay a US$300 million (euro250 million) fine to settle accusations it secretly conspired with industry rivals to fix prices and cheat customers.

Samsung Senior Vice President Chu Woosik told investors on a conference call in Seoul on Friday that net profit would have been higher were it not for setting aside about 200 billion won ($192 million) to pay the fine. The company last year already set aside $100 million.

"If you exclude that, net profit would have gone over 2 trillion (won)," he said.

Sales during the quarter rose 1.4 percent to 14.54 trillion won ($13.94 billion) from 14.34 trillion won a year earlier, the company said.

Prices for Samsung's mainstay businesses - chips, mobile phones and liquid crystal displays used in computer monitors and televisions - peaked in the first half of last year. Profit margins in the industry have since been eroded by a global oversupply of dynamic random access, or DRAM, chips and LCDs, and stiffer competition in the mobile phone business.

Samsung is the world's biggest producer of DRAM and NAND flash memory chips. It is the second-largest semiconductor maker after Intel Corp. and is also one of the largest makers of LCDs along with domestic rival LG.Philips LCD Co.

DRAM chips are most widely used in personal computers, while NAND flash chips are used in electronic devices such as MP3 players and digital cameras.

Prices of DRAM chips fell 35 percent from the same quarter last year, while those for NAND dropped 50 percent, according to industry analysts.

From the previous quarter, however, Samsung said the declines were far less, with DRAM prices down just 3 percent and those for NAND 19 percent lower, helping net profit gain 11 percent from the second quarter.

That and expectations of continued strong demand for flash memory chips used in products like Apple Computer Inc.'s hot-selling iPod digital music player made Samsung officials optimistic about the future.

"We see very strong momentum continuing in the NAND business," Samsung's Chu said.

While Samsung officials acknowledge supplying flash memory chips to Apple, they and the Cupertino, California-based company have remained mum on details, including how much and at what price.

The company, the world's third-largest maker of handsets after Nokia Corp. and Motorola Corp., said it sold a record 26.8 million mobile phones during the quarter, with Europe remaining its biggest market at 36 percent of the total, compared with 33 percent in the previous quarter.

"The handset market is expected to remain very strong," Chu said.

Samsung's guilty plea to a felony price-fixing charge caps a three-year investigation by the U.S. Justice Department into makers of the chips, a $7.7 billion market in the United States.

Samsung said in a statement the company "strongly supports fair competition and ethical practices and forbids anticompetitive behavior."

Two of Samsung's leading rivals - South Korea's Hynix Semiconductor Inc. and Germany's Infineon Technologies AG - earlier paid fines totaling $345 million and pleaded guilty to involvement in a scheme the government said boosted prices consumers paid for computers between 1999 and 2002.

Samsung Electronics shares closed unchanged Friday at 562,000 won ($538).