Samsung Electronics Co. Ltd. is set to report a 7 percent fall in quarterly profit on Friday on shrinking margins in mobile phones and flat screens, but analysts forecast a recovery in the second half.

Improving sales in new ultra-slim phones and high-powered memory chips are likely to drive Samsung's earnings from the third quarter, analysts said.

The second quarter will definitely mark a low for the year, said Michael Min, a technology analyst at Korea Investment & Securities. The company will then move into high-demand season, which will improve its bottom line.

Samsung, the world's biggest memory chip maker, is expected to earn 1.58 trillion won ($1.68 billion) in net profit for the quarter ended June 30, according to a survey of 10 analysts.

It compares with a profit of 1.69 trillion won a year earlier and 1.88 trillion in the previous quarter. Contributions from strong earnings at affiliates such as unlisted Samsung Card helped to minimise the fall, analysts said.

On the operating level, profit was expected to fall 21 percent to 1.3 trillion won from 1.65 trillion a year earlier.

Revenue was forecast at 13.87 trillion won, up from 13.59 trillion a year earlier.

For 2006, Samsung, the most valuable technology firm outside the United States, is set to earn a 7.79 trillion net profit, slightly higher than 7.64 trillion in 2005, Reuters Estimates showed. That represents a 4.33 trillion won net profit for the second half against 3.46 trillion in the first.

BROAD-BASED REBOUND

Samsung, the world's third-largest maker of mobile phones after Nokia and Motorola, has seen its market share retreat in recent quarters, hit by the runaway success of Motorola's clamshell RAZR phone.

Samsung was a bit late in introducing some key handset products, said Jay Kim, an analyst at Hyundai Securities. On the other hand, the third quarter should get a boost from the release of those new models.

Samsung is expected to have sold between 26-27 million mobile phones in the second quarter, down from the first quarter's record 29 million, and to report a slide in profit margin to 7-8 percent from 12 percent a year earlier.

Analysts expect the volume to pick up to 30 million in the third quarter with a double-digit profit margin, helped by new slim handsets Samsung launched late in the quarter.

The world's second-biggest maker of large LCD panels last year behind LG.Philips LCD is likely to see its display unit squeezed by aggressive discounting and a lacklustre soccer World Cup, which entailed higher marketing costs but failed to boost flat panel sales as dramatically as hoped.

Analysts estimate Samsung saw a decline of over 15 percent in average prices of notebook and monitor panels in the second quarter, leading to a profit margin barely in the black.

LG.Philips is expected to report second-quarter results on Tuesday, with analysts forecasting a 306.4 billion won net loss.

Samsung's fortunes in memory chips will likely improve after a rocky first quarter. After a period of booming demand, flash memory chips, used in products like Apple Computer Inc.'s iPod, saw their prices tumble in January-March.

Samsung is expected to post a profit margin of around 30 percent for both dynamic random access memory (DRAM), used mainly in computers, and flash chips, analysts say.

Profits from DRAM are likely to top the level of the first quarter, said Song Myung-sup, an analyst at Goodmorning Shinhan Securities. He expected higher profit from NAND chips thanks to rising shipments offsetting a 25-26 percent price drop.

Demand for high-capacity music players slated for the fall and new computer lines aimed at students returning to school are likely to keep the chip division churning out solid profits.

Shares in Samsung Electronics, the country's biggest stock worth $93 billion, fell 4.3 percent in the second quarter, in line with a 4.7 percent drop in the wider market.

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