Samsung Electronics Co., Asia’s biggest maker of chips, flat screens and mobile phones, will probably report third-quarter profit growth stalled as oversupply and intensified competition drove down product prices.

Net income may be 1.9 trillion won ($2 billion), little changed from a year earlier, according to the median estimate of 17 analysts surveyed by Bloomberg News. Sales at the Suwon, South Korea-based company, which reports on Oct. 16, probably rose 5.6 percent to 15.4 trillion won.

Chief Executive Officer Yun Jong Yong cut prices on chips, mobile phones and TVs, Samsung’s three biggest products, to keep up with rivals including handset makers Nokia Oyj and Motorola Inc., which increased production of cheaper models. Samsung reports third-quarter earnings before all of its biggest rivals, helping investors gauge demand for electronics.

“Expectations for a strong earnings recovery should be lowered because of price declines of memory chips, flat panels and handsets,” said Jung Kyun Sik, who helps manages about $1.2 billion at Shinhan BNP Paribas Investment Trust Management Co. in Seoul.

The company’s forecast for record third-quarter chip sales helped drive its shares up 5 percent in the past three months, a gain Jung says may have gone too far.

“Samsung’s stock price doesn’t look that attractive at current levels,” Jung said.

Flash Glut

Third-quarter profit from semiconductors, which generated 68 percent of operating income last year, probably fell 10 percent to 1.2 trillion won as oversupply of NAND flash memory chips used to store songs and pictures in consumer electronics drove down prices, according to the survey of analysts. Revenue at the division, second only to Intel Corp. in semiconductor sales, probably rose 7 percent to 4.9 trillion won.

Profit margins for NAND chips, whose industry sales surged 64 percent to $10.6 billion last year as the fastest-growing semiconductor segment, probably shrank to 25 percent in the third quarter, compared with 44 percent a year earlier, according to estimates by Simon Woo, an analyst at Merrill Lynch & Co.

Global supply of NAND flash chips will grow 3.2 times this year from a year earlier, faster than the increase in demand, according to Merrill Lynch.

A shortage of computer chips known as dynamic random access memory, or DRAM, helped offset declining NAND profitability. DRAM profit margins probably rose to 37 percent in the third quarter, from 28 percent a year earlier, according to Woo.

DRAM spot prices have surged 70 percent this year, helping the company post record chip sales during the latest quarter, Hwang Chang Gyu, semiconductor division president, said in a press conference in Seoul last month. The previous record is 5.1 trillion won, posted in the fourth quarter of last year.

Sales of both DRAM and NAND chips will grow in the fourth quarter as new models of MP3 players and video game consoles, coupled with the increased memory requirements of Microsoft Corp.’s Windows Vista operating system drive up demand for memory chips, Hwang said. Vista is due for release to businesses next month and to consumers in January.

Flat Panel Displays

Samsung, the world’s largest maker of LCDs, probably saw profit from the flat-panel division halve to 149 billion won in the quarter on lower screen prices, according to the Bloomberg survey. Sales probably rose 13 percent to 3 trillion won.

Third-quarter average prices of LCDs used in televisions have fallen 35 percent from a year earlier, according to estimates by Taipei-based WitsView Technology Corp., which tracks weekly LCD price movements.

LG.Philips LCD Co., Samsung’s nearest competitor, reported on Oct. 10 a bigger-than-expected loss in the third quarter and forecast earnings that missed analysts’ estimates on falling television panel prices. Taiwan’s AU Optronics Corp. and Chi Mei Optoelectronics Corp. will probably report profit declines for the latest quarter, according to James Kim, an analyst at Lehman Brothers Holdings Inc.

Samsung is able to generate a profit because it’s locked up customers such as Bravia TV-maker Sony Corp., the world’s second- largest consumer electronics maker, said John Park, an analyst at Daishin Securities Co. in Seoul. Samsung and Tokyo-based Sony have jointly produced LCDs since 2005 through a venture called S- LCD Corp.

Samsung’s profit from its LCD division will climb to 355 billion won in the fourth quarter on sales of 3.1 trillion won, according to estimates by Nomura International (Hong Kong) Ltd.

Telecommunications Gear

In the telecommunication business, which accounted for a third of the company’s sales last year, Samsung may report its third consecutive quarter of declining profit as mounting competition drove down handset prices. Profit fell 13 percent to 475 billion won, according to the survey of analysts. Revenue probably rose 5 percent.

Average third-quarter prices of Samsung mobile phones probably slid 6.7 percent from a year earlier, according to Macquarie Securities Ltd. estimates last month.

Nokia and Motorola, the industry’s two biggest producers, are churning out cheaper handsets and gaining market share, making it more difficult for smaller rivals to keep up.

“Samsung is facing pressures from falling prices and tougher competition because of Nokia and Motorola,” said Son Myung Chul, analyst at Daehan Investment & Securities Co. in Seoul.

Taiwan’s Benq Corp., which bought Siemens AG’s mobile phone division a year ago to leap as the world’s sixth-largest producer, said last month it will halt financial support of the German handset unit, which cost an estimated 600 million euros in losses.

In July, LG Electronics Inc., the industry’s fifth-largest producer, posted a second straight quarterly loss at its handset division. The company’s mobile phone business will probably report a 57 drop in third quarter profit, according to a separate Bloomberg survey of analysts.

Source- http://www.bloomberg.com