Lee Jin-man  /  AP
South Korean students look around in front of Samsung Electronic's hall during an IT Korea Exhibition in Seoul Friday. The company said Friday its first-quarter net profit rose 26 percent from the year before amid strong demand for large-size flat screen televisions.
updated 4/14/2006 11:09:04 AM ET 2006-04-14T15:09:04

Samsung Electronics Co., South Korea's largest company, said Friday its first-quarter net profit rose 26 percent from the year before amid strong demand for large-size flat screen televisions.

Samsung earned 1.88 trillion won ($1.95 billion) in the three months ended March 31, the company said in a statement, mostly citing equity gains from the performance of overseas subsidiaries.

The result was better than expected. The average estimate of 10 analysts surveyed by Dow Jones Newswires forecast that the company would post a 17 percent increase in net profit to 1.76 trillion won ($1.83 billion).

Samsung said sales in its liquid crystal display, or LCD, business soared 41 percent to 2.68 trillion won ($2.78 billion) from the year before because of demand for big flat screen TVs. Operating profit in the division surged more than fourfold.

Samsung makes its own flat panel TVs and is a major supplier of the liquid crystal displays used in other manufacturers' television sets, as well as in laptops and cell phones. It competes with LG.Philips LCD Co. for dominance in the market for displays.

Overall operating profit, or sales minus the cost of goods sold, however, slumped 25 percent from the year before amid strength in the South Korean won and falling prices for products including NAND flash memory chips used in digital music players.

Samsung is the world's largest manufacturer of memory chips, including DRAM, or dynamic random access memory.

Total sales for the Suwon, South-Korea-based company rose 1 percent to 13.96 trillion won ($14.5 billion).

LCDs have been a bright spot for companies like Samsung. Global demand for the televisions is soaring as consumers increasingly abandon their bulky cathode ray tube sets for the sleeker, thinner versions.

Samsung and Japan's Sony Corp. this week said they plan to invest about $2 billion to expand joint production of LCD panels to meet demand for televisions.

Woosik Chu, senior vice president and head of investor relations, said Samsung shifted its LCD production focus to screens for large-sized TVs amid a seasonal slowdown in demand for personal computers.

"We significantly increased the shipment of 40-inch and above TV panels by 20 percent quarter on quarter," Chu said. "Even with this kind of significant increase in output we are still not able to meet our customers' demand for large TV panels."

Chu, speaking to investors and analysts on a conference call, said South Korea's currency gained about 6 percent in the first quarter from the fourth quarter of last year.

"Such a drastic won appreciation had a negative impact on our revenue and profits," he said.

Chu said that the value of exports at Samsung, which does about 90 percent of business overseas, declined 7 percent from the fourth quarter, adding that when those figures are converted into won, the decline was more like 12 percent.

A stronger won makes South Korean exports more expensive in overseas markets and reduces the value of profits earned overseas when converted into the home currency.

Samsung shares rose 2.7 percent to close at 655,000 won ($680).

Separately, Samsung announced it would buy back 2.6 million shares, worth an estimated 1.86 trillion won ($1.93 billion).

The company also said it plans to invest $220 million to expand output at a semiconductor facility in Austin, Texas.

The company already employs 1,250 in Austin and is the company's only memory chip producing facility outside South Korea. Texas Gov. Rick Perry said terms of the agreement call for the creation of 900 new jobs, including 300 on-site contractors.

Hae Wan Choi, a Samsung spokeswoman, said the new production line, which will make 300 mm, or 12 inch chips, is expected to be in operation in late 2007.

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