April 29, 2011

A Tough Q1 for Samsung

Samsung (News - Alert) Electronics looks like it had a pretty rough first quarter. After a 30 percent fall, Samsung Electronics faces a challenging outlook after reporting its third consecutive decline in quarterly profit.

As the second place handset maker, the crowning business despite the recent disasters in Japan is the company’s memory chip sector. Despite this, the Q1 outlook clouds over this bit of good news.

"Although the memory chip business is reviving, other operations such as telecommunications and displays are facing tough times ahead," said Han Se-woong, a fund manager at AssetPlus Investment Management, which owns Samsung shares.

Samsung's Galaxy model smartphones and tablet computers were viewed as some of the biggest potential rivals to Apple's iPhone (News - Alert) and iPad but it has been unable to match the U.S. company's sales growth. The company also announced that it was raising the ante in a legal dispute with Apple (News - Alert) Inc. by filing a new lawsuit against the U.S. company over alleged patent infringement. Samsung accuses Apple of violating its rights to 10 smartphone and computer patents.

The company is also facing supply shortages due to the recent earthquakes, however they still feel they’re in good shape.

"As for our company, currently we expect minimal negative impact as we have already secured most of our key components and we continuously look to diversify our supplier base," said Robert Yi, Samsung vice president, on a conference call.

With profits down, Samsung recently looked to trim some of its business to save some money as the company recently announced they were selling off its hard-drive unit.

Citing an unnamed person familiar with the matter, The Wall Street Journal reported that South Korea’s is hoping to raise about $1.5 billion in the sale, though it may settle for less than $1 billion to rid itself of the business.

Reports confirmed that Seagate was named as purchasing the HDD unit for a reported $1.38 billion.

The payment will be made half in cash and half in Seagate (News - Alert) stock. Once completed, Samsung will own 9.6 percent of Seagate's stock and Samsung will also appoint an executive to Seagate's board of directors.

Other aspects of the deal involve a NAND flash memory agreement that has Samsung providing Seagate with its flash products for use in Seagate's solid state drives. In return, Seagate will supply Samsung with hard disk drives for its PCs, notebooks and other CE products.

Shares in Samsung, which announced earnings results during morning trading, fell 0.8 percent to close at 893,000 won after declining as much as 2.2 percent earlier.

Michelle Amodio is a TMCnet contributor. She has helped promote companies and groups in all industries, from technology to banking to professional roller derby. She holds a bachelor's degree in Writing from Endicott College and currently works in marketing, journalism, and public relations as a freelancer.

Edited by Jennifer Russell