Samsung hikes profits, capex outlook

October 16, 2006 – Samsung Electronics Co. Ltd. has tacked on another 18% to its projected 2006 capital expenditures budget for semiconductors — the company now expects to spend 6.66 trillion won ($7.03 billion), up from 5.63 trillion won ($5.94 billion).

Memory spending is being hiked by about 22% (to 5.60 trillion won/$5.91 billion), with a fraction removed from system LSI (now at 960 billion won/$1.01 billion). Samsung’s original 2006 semiconductor capex plans called for an 11% reduction from 2005’s level of 6.33 billion won ($6.79 billion) — now 2006 will be about 5% higher than a year ago, with about 78% of that new budget already spent.

Samsung also added about 9% to its 2006 capex budget for LCD spending, now at 2.59 trillion won ($2.73 billion), while slashing telecom capex in half (to 260 billion won/$274.3 million).

Samsung also said its semiconductor division posted a 30% higher operating profit of 1.27 trillion won (US $1.34 billion) in its fiscal 3Q06, on 11% higher sales of 4.91 trillion won ($5.18 billion), compared with the prior quarter. Year-on-year, sales in the company’s semiconductor unit were up 7%, with a 6% decline in operating profits.

Seasonally strong DRAM sales drove the results, with 21% bit growth Q-Q. Increased production of DDR2 helped keep prices high, and 90nm production is running smoothly, the company said. NAND sales increased with 35% bit growth Q-Q, as the company hiked output of 8Gb MLC devices (accounting for 40% of its NAND flash output in 3Q).

For system LSI, business was brisk due to higher demand for chips used in mobile devices and media players.
Samsung sees high PC growth in 4Q (13% Q-Q) due to demand for 1GB+ of memory, mainly for consumer PCs, and in preparation for the new Microsoft Vista OS (which some reports have said may need as much as 2GB of memory to run properly).

For NAND flash, new products such as 8GB MP3 players, and sinking price points (1GB = $40), will lead to robust demand — the company expects its own bit growth to increase Q-Q in 4Q06 (mid-30% to mid-40%), vs. an overall decrease in market bit growth (40% to 32%), helped by efficiencies achieved in its ramp of 60nm 8GB production.

Overall Samsung group sales were up 8% sequentially and 5% Y-Y to 15.22 trillion won ($16.06 billion), with net profits up 45% Q-Q and 16% Y-Y to 2.19 trillion won ($2.31 billion).


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