Samsung Electronics' third-quarter profit falls on lower chip prices, fine charge

Samsung Electronics Co., the world's largest memory chip maker and a major consumer electronics company, said Friday that third-quarter profit declined 30 percent amid lower chip prices and because it set aside funds to pay an antitrust fine in the United States.

South Korea's biggest company by market capitalization said it earned 1.88 trillion won (US$1.8 billion; Ђ1.5 billion) in the three months ended Sept. 30, down from 2.69 trillion won (US$2.6 billion; Ђ2.1 billion ) in the same period a year earlier.

The third-quarter result was worse than expectations. A survey of 10 analysts by Dow Jones Newswires predicted Samsung's profit would total 1.97 trillion won ($1.89 billion; Ђ1.58 billion).

The earnings report came a day after U.S. federal officials in Washington said Samsung will pay a US$300 million (Ђ250.4 million) fine to settle accusations it secretly conspired with industry rivals to fix prices and cheat customers.

Samsung Senior Vice President Chu Woosik told investors on a conference call in Seoul on Friday that net profit would have been higher were it not for setting aside about 200 billion won (US$192 million; Ђ160 million) to pay the fine. The company had previously set aside US$100 million (Ђ83 million).

"If you exclude that, net profit would have gone over 2 trillion (won)," he said.

Sales during the quarter rose 1.4 percent to 14.54 trillion won ($13.94 billion; Ђ11.61 billion) from 14.34 trillion won (US$13.74 billion; Ђ11.44 billion) a year earlier, the company said.

Prices for Samsung's mainstay businesses _ chips, mobile phones and liquid crystal displays used in computer monitors and televisions _ peaked in the first half of last year. Profit margins in the industry have since been eroded by a global oversupply of dynamic random access, or DRAM, chips and LCDs, and stiffer competition in the mobile phone business.

Samsung is the biggest producer of DRAM and NAND flash memory chips in the world. It is the second-largest semiconductor maker after Intel Corp. and is also one of the largest makers of LCDs along with domestic rival LG.Philips LCD Co.

DRAM chips are most widely used in personal computers, while NAND flash chips are used in electronic devices such as MP3 players and digital cameras. LCDs are increasingly replacing the bulky, conventional cathode ray tubes used in PCs and high-priced television sets.

Samsung's guilty plea to a felony price-fixing charge caps a three-year investigation by the Justice Department into makers of the chips, a US$7.7 billion (Ђ6.43 billion) market in the United States.

Samsung said in a statement the company "strongly supports fair competition and ethical practices and forbids anticompetitive behavior."

The Justice Department's acting antitrust chief, Thomas O. Barnett, said seven Samsung employees are not legally protected from further prosecution under the plea agreement, an indication they may individually face criminal charges.

A spokeswoman, Chris Goodhart, declined to identify the seven employees or say whether they still worked for Samsung.

Two of Samsung's leading rivals earlier paid fines totaling US$345 million (euro287.98 million) and pleaded guilty to involvement in a scheme the government said boosted prices consumers paid for computers between 1999 and 2002.

Samsung's top competitor, South Korean firm Hynix Semiconductor Inc., pleaded guilty this year to price-fixing and paid a $185 million (euro154.42 million) fine. Last September, rival Infineon Technologies AG of Germany agreed to a $160 million (euro133.56 million) fine. Another competitor, Micron Technology Inc. of Boise, Idaho, has been cooperating with prosecutors and was not expected to face charges.

The $300 million (euro250.42 million) penalty is the second-largest criminal antitrust fine ever, behind only the $500 million (euro417.36 million) fine by Hoffmann-La Roche Ltd. in a 1999 vitamins-related case.

Samsung Group, of which Samsung Electronics makes up the biggest part, has faced various troubles in South Korea. The country's parliament last month summoned the group's chairman, Lee Keun-hee, over the disposal of its auto unit in the aftermath of the Asian financial crisis. Lee, in the United States for medical treatment, didn't appear.

Also earlier this month, a Seoul court convicted two Samsung executives on charges of selling convertible bonds to Lee's children at prices lower than market value. Samsung has appealed that ruling.

The group issued a public apology in July in the midst of a burgeoning spy agency wiretapping scandal after the contents of a taped converstation in which a Samsung Group executive was purportedly heard discussing channling Samsung funds to candidates in South Korea's 1998 presidential election.

Samsung expressed regret that "social confusion was fostered and anxiety caused to the Korea people" over reports of the tape, AP reported. V.A.