By AP Business Writer
updated 7/13/2007 9:52:38 AM ET 2007-07-13T13:52:38

Samsung Electronics Co. said Friday that second-quarter net profit fell 5 percent from a year ago on price declines for its mainstay computer memory chips, but expressed confidence a rebound in the market would bolster earnings.

The company's shares surged 6.4 percent to $749 (687,000 won) amid investor expectations for stronger business performance later in the year as well as on a news report that U.S. investor Carl Icahn may be considering a bid for the company.

Samsung, the world's largest computer memory chip manufacturer, earned 1.42 trillion won ($1.55 billion) in the three months ended June 30, the company said in a statement. Sales rose 3.6 percent during the quarter from the same period last year.

"We are very, very optimistic about the second half, very sanguine in our outlook," Chu Woo-sik, executive vice president and head of Samsung investor relations, told analysts on a conference call. "We are in fact expecting all of our major businesses to experience very high level of demand recovery starting from Q3."

While the company doesn't release quarterly earnings forecasts, investors and analysts are betting on strong earnings growth in the third and fourth quarters.

The profit result, the third straight quarterly decline, was better than expected. The average estimate of nine analysts surveyed by Dow Jones Newswires forecast that Samsung would post a net profit of 1.33 trillion won ($1.45 billion).

Prices and supply conditions for memory chips are highly seasonal, with demand usually strongest in the final two quarters of the year when purchases of personal computers traditionally pick up.

Samsung manufactures both DRAM, or dynamic random access memory, chips used in personal computers, as well as NAND chips used in digital cameras, music players and mobile phones.

Chu said that Samsung expects "very strong" DRAM demand the rest of the year, driven by sales of computers equipped with Microsoft Corp.'s Vista operating system.

He added that Apple Inc.'s introduction of the iPhone is spurring other handset makers to bulk up their music phones with more NAND flash to compete.

"In the case of NAND the picture is also quite rosy," he said.

Analysts concurred with Samsung's bullish outlook and said they expect improvements in all business sectors.

"I think the second quarter is the bottom," said Lee Min-hee, an analyst at Dongbu Securities.

Besides memory chips, Samsung is also the world's top producer by market share of flat-screen televisions in both liquid crystal and plasma display versions. It ranks third globally in mobile phone handsets.

Samsung recorded sales of 16.63 trillion won ($18.2 billion) compared with 14.1 trillion won a year earlier. Analysts had expected revenue of 15 trillion won ($16.3 billion).

Samsung released earnings on the heels of a report Friday in the Chosun Ilbo, South Korea's largest newspaper, citing an unnamed high-ranking official at Samsung as saying Icahn may be preparing a move.

"This company is not aware of such an attempt," Chu, the executive vice president, told the conference call. "Should someone try to do something like that we have appropriate sets of strategy in place that we will implement that would be effective against those attempts."

Hostile takeover attempts by foreign investors in South Korea are rare. Icahn and other U.S. investors were involved last year in an unsuccessful takeover bid for South Korean tobacco company KT&G Corp.

Samsung Electronics is South Korea's most valuable corporation with a market capitalization of 101 trillion won ($110 billion) as of the close of trading Friday, according to the Korea Exchange.

Foreign investors owned 49.26 percent of its shares at the end of Thursday's session, the most recent data available. Samsung shares have risen 12 percent this year.

Analysts including Dongbu's Lee said that any attempt to take over Samsung Electronics would be difficult, given the complicated organizational structure of the Samsung Group and that group companies control 30 percent of its shares.

"At this time it doesn't seem like a viable strategy to take a stake in Samsung and sway other investors given the size of the company," said Chung Sun, an analyst at Nomura International.

Also on Friday, the company announced plans to market an 18-carat gold-plated mobile phone in China in commemoration of next year's Beijing Olympics.

The company, the world's third-largest manufacturer of mobile phones, has yet to set a price or decide a launch date for the device, dubbed the P318, said Samsung spokeswoman Lee Soo-jeong.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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