Samsung Electronics <005930.KS>, the world's No.1 memory chip maker, is set to see slower growth in the second-half as the euro zone crisis weakens demand for flat screens and chip prices are likely to ease.
Samsung, three times bigger than rivals such as Sony Corp <6758.T> and Nokia by market value, is leading its competitors in earnings recovery in a robust consumer electronics market, but its emerging smartphone business faces a strong headwind from Apple Inc's iPhone.
Profits will peak out in the third quarter and then gradually decrease from the fourth quarter, said Jay Kim, analyst at Mirae Asset Securities.
There are a few risk factors that could hit earnings, such as a slow recovery in the smartphone business, a potential surge in the won and macroeconomic conditions, but overall the picture is quite positive.
Analysts expect sluggish demand from Europe and a nearly 10 percent tumble in the euro to lead Samsung to report its mobile phone unit's profit nearly halved in the second quarter from the preceding quarter.
Prices of memory chips, mainly used in computers and servers, have stayed firm since mid-2009 and component producers are having trouble to cope with strong orders, as consumers and firms resume technology spending in a broad global economic recovery
Sales of liquid crystal display flat screen panels also remain strong thanks to robust demand from TV producers betting on healthy demand growth during this summer's World Cup.
Samsung, the world's largest maker of flat screen and TVs and also the No.2 producer of mobile phones, expects to report record results in the current quarter but analysts estimate profits will fall by 20 percent in the fourth quarter on rising supply.
The phone business, one of Samsung's weakest performing units, is also likely to see a slow profit recovery as it boosts marketing costs to increase its share of the smartphone market share after delayed product roll-outs.
Samsung is launching the Galaxy S, its answer to the latest version of iPhone 4, globally with 100 carriers including the top five U.S. carriers.
European demand for finished goods is decreasing, which could hurt earnings, but it must be kept in mind that more than half of Samsung's profitability comes from component products such as chips, for which demand is still strong, said Hwang Yoo-shik, analyst at SK Securities.
Shares in Samsung, Asia's most valuable technology firm worth $92 billion, have fallen 11 percent over the past three months from a record high of 875,000 won, lagging the local market's <.KS11> 2.4 percent drop.
By 0125 GMT, the stock fell 0.8 percent, versus a 0.5 percent drop in the wider market.
The second half could be a problem and that's because demand in Europe might slow and hurt sales of memory chips and (flat screen) panels, said Michael On, manager director of Beyond Asset Management in Taipei. Its profits in the second half won't be as good as the first half.
LCD prices turned weaker from the second quarter on concerns weaker European demand may have inflated TV inventories sharply and that demand could decrease further once the World Cup ends this month.
Samsung estimated its April-June operating profit at a median 5.0 trillion won ($4.09 billion) in a range of 4.8-5.2 trillion won, higher than a consensus forecast of 4.8 trillion won by 22 analysts polled by Thomson Reuters I/B/E/S.
The quarterly profit would beat the previous record of 4.41 trillion won reported in the preceding quarter and almost double from 2.67 trillion won a year ago.
Samsung expects sales at the midpoint of a 36 trillion and 38 trillion won range, slightly below market expectations of 38 trillion won. It did not provide a detailed guidance breakdown for each division.
The South Korean firm, the first major global technology firm to flag second quarter estimates, reports official quarterly results later this month.
(Additional reporting by Jungyoun Park in Seoul and Baker Li in Taipei; Editing by Jonathan Hopfner and Anshuman Daga)