Chip sales stall Samsung

Samsung Electronics stumbled into a $640m (£407m) earnings pothole in the first three months of this year, slowing the remarkable rise of South Korea's most valuable firm.

After two years in which it seemed impervious to the global IT downturn, Samsung yesterday announced a 41% slide in net profits to 1.1 trillion won (£581m).

The huge corporation, which accounts for 20% of the capitalisation of the Seoul main stock index, blamed the setback on the falling price of memory chips - an area in which it is the world leader.

Amid the deepest decline in the 50-year history of the semiconductor industry, Samsung has been forced to offer new discounts on its 256-megabit chips every two weeks, forcing down overall sales in the period by 3%.

The diversified company was also hurt by a hefty loss on two financial subsidiaries and glum economic conditions in its home market.

"We've encountered an unexpected market situation in the first quarter with a tough domestic economy, the war in Iraq and North Korea's nuclear threats. It's natural that in these conditions, sales and profit levels come down," said Chu Woo-sik, a vice-president of the company.

But investors accepted this was only a pause in the rise and rise of Samsung, which has shed its reputation for shoddy goods to challenge Sony and Nokia in top end consumer electronics such as flat panel televisions.

The firm's share price rose more than 4% after executives painted a positive picture of the present quarter and reaffirmed plans to expand in the chip and handset fields.

Samsung recently jumped into third place in the world market for mobile phones, thanks to the popularity of its handset designs, but the benefits of a rise in shipments to 13.2m units during the January to March period was undercut by a 5% fall in prices.

The company said export prices for handsets would rise 10-15% as colour screens and built-in cameras become more popular.