Samsung 2Q chip numbers soft, but 2007 capex may be higher

July 13, 2007 – After posting a Samsung Electronics posted a six-year low in fiscal-year profits in 2Q07, but the company indicated it actually could exceed its 2007 capex plans, and maybe increase 2008 capex as well.

The company said sales rose 2% Q-Q and 4% Y-Y to 14.3 trillion yen (US ~$15.59 billion), but profits by all measures slumped during the quarter — operating profits sunk below 1 trillion won for the first time in six years (to 910 billion won, or $992.2 million), while gross profits slumped 3% to 3.34 trillion won ($3.64 billion) and net profits fell by 11% to 1.42 trillion won ($1.55 billion). Overall semiconductor sales were down 5% to 4.26 trillion won ($4.64 billion), though system LSI sales (representing 15% of sales) saw a 14% increase.

Continued weak pricing across the memory segment due to oversupplies was the main problem, Samsung acknowledged — “It wasn’t our fault, but sometimes in your life, pains just come to you,” the Korea Times quoted a spokesperson saying. But the pricing environment is also driving demand growth — the company reported 31% higher bit growth Q-Q, and 18% higher GB/systems. The NAND business has welcomed strong pricing thanks to robust demand and a supply shortage thanks to “geometry migration” by some memory chipmakers, with demand driven by 2GB+ cards and music phones. Samsung says its NAND bit growth was good (11%), with its own continued migration to 50nm process technologies and increased wafer input. System LSI sales also were a high point, thanks to demand for handset displays and mobile applications.

2Q capex was slightly higher than anticipated (2.03 trillion won/$2.21 billion, vs. 1.98 billion won/$2.16 billion as expected), and through 1H07 Samsung has already spent two-thirds of its full-year semiconductor budget, which is still set at 5.44 trillion yen ($5.93 billion), but the company thinks it could actually exceed that budget by 4%-5% (~$200-$400 million). An explanation comes from FBR Research, which in a research note suggested that a “multiplying impact” of box loading and PC unit growth could actually swing an industrywide 25% DRAM excess to a ~5% undercapacity situation by year’s end. That’s positive news for the industry in general (especially equipment suppliers), and suggesting 2008 capex might increase as well.

Looking ahead, Samsung projects a seasonal pickup in DRAM for “back-to-school” PC sales, plus demand from handsets and game consoles, as well as and a capacity shift to NAND and perceived difficulties in migrating to 70nm process manufacturing. For NAND, the firm expects to see increased adoption of higher-density memory (8-16Gbit MLC for new applications requiring gigabytes of memory, including music phones, PCs, PMPs, and SSDs.

(Image source: Samsung Electronics)


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