Samsung's Q3 Earnings May Herald Rosy Days Ahead

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Prices of computer memory chips have rebounded recently after a free fall in 2007 and 2008. Prices of the benchmark DRAM chip, which temporarily holds data while computer processors run programs, have more than doubled, to $1.70 from $0.83 in January, says chip analyst Song Myung Sup at brokerage HI Investment & Securities. Samsung, meanwhile, has increased its market share by about four percentage points in the past year to control more than a quarter of the global DRAM market now, according to Song.

Another big turnaround came in the LCD unit. Helped by strong LCD-TV demands in China and North America and double-digit price gains in LCD panels for monitors and notebooks in the third quarter, Samsung is expected to increase profits in its LCD panel businesses to around $850 million in the three months to Sept. 30 from $128 million in the previous quarter, says Jay Kim of brokerage Hyundai Securities.

LED-TV Bet Pays Off

The significant profit gains in the LCD and chip businesses follow the Korean company's marketing success in TVs, particularly for sets using LEDs (light-emitting diodes) as a light source. Its high-risk bet on high-end LED-TVs helped Samsung rake in profits in the second quarter, when it boasted a double-digit profit margin from the traditionally thin-margin TV business. Hyundai Securities expects Samsung to earn roughly equally from its four main businesses of memory chips, LCD panels, TVs, and handsets in the third quarter, while it relied heavily on TVs and mobile phones for profits three months earlier.

One big question is if Samsung can continue its winning streak even as the Korean currency begins to strengthen. The Koreans have enjoyed a price and profit advantage against their Japanese, European, and U.S. rivals as the won stayed weak since the 2008 global financial crisis. Yet after the won lost its value against the dollar by 25.7% in 2008, it has strengthened against the greenback by 7.5% so far this year.

However, analysts point out that the won has dropped by about 13% against the yen, which has been gaining value against the dollar at a much faster pace than the won. "Even if the won strengthens somewhat, benefits from an economic recovery will more than balance out the negative implications in its earnings prospects," says Min at fund manager Tempis Capital.

Moon is BusinessWeek's Seoul bureau chief.

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