Samsung Electronics <005930.KS>, the world's top maker of memory chips and LCD screens, posted its best quarterly profit in 2-½ years thanks to a turnaround in its memory chip business but maintained caution for the rest of the year.

Samsung looks poised to make the most of a nascent recovery in the global memory chip sector following a 2-year-old industry slump, as it enjoys a technological edge over rivals such as Elpida <6665.T>.

Higher chip prices also helped Hynix Semiconductor <000660.KS>, the No. 2 maker of memory chips, post a sharply narrowed net loss on Friday. Hynix is expected to swing to an operating profit in the current quarter.

Samsung Electronics will benefit the most from the current chip sector recovery as it is the market leader in the most advanced mass produced DDR3 chips, said Kim Sung-in, chief technology analyst at Kiwoom Securities.

One of our worries is that its handset unit may not do as well as the markets' hyped-up expectations. Memory chips and flat panels will be the biggest supporter of Samsung Electronics' second half earnings, Kim said.

Samsung itself sounded caution over the rest of the year.

Operating profit may be affected by a possible appreciation of the Korean won and intensifying market competition, said Robert Yi, Samsung's head of investor relations.

April-June net profit rose 5 percent to 2.25 trillion won ($1.81 billion) from a year ago, beating an average forecast for 1.68 trillion won in a Reuters poll of 11 analysts.

Samsung's consolidated operating profit came in at 2.52 trillion won, within its earlier guidance of 2.2-2.6 trillion.

By 0302 GMT, Samsung's shares rose 0.15 percent compared with a 0.45 percent rise in the wider market <.KS11>, as the results were roughly in line with previous guidance provided on July 6.

Samsung shares are underperforming as strong earnings were widely expected following the company's earnings guidance, said Song Kyung-keun, a market analyst at Dongbu Securities.

Shares have gained a lot, and there is some profit taking going on now.

Shares in South Korea's biggest company have risen 50 percent this year through Thursday, beating the broader market's 33 percent gain.

STRONG CHIPS TO CARRY SAMSUNG

Samsung's semiconductor business posted a consolidated operating profit margin of 4 percent, a strong turnaround from its 13 percent loss margin in the previous quarter.

The industry leader swung to a profit in its LCD business, where it competes closely with home rival LG Display Co Ltd <034220.KS> and Taiwan's AU Optronics <2409.TW>.

But in mobile phones, where it ranks behind only Nokia , the telecom division's profit margin edged down to 10 percent in the second quarter from 11 percent in the first.

Samsung said it would be prepared for a possible slowdown in the LCD business in late 2009 and early 2010, as price competition between TV set makers might heat up.

LCD prices are unlikely to recover much due to signs of a supply glut, said Chang In-whan, chief executive and fund manager at KTB Asset management. (Additional reporting by Kim Yeon-hee, Miyoung Kim, Joungyoun Park and Shin Ji-eun; Editing by Jean Yoon)

Electronics Samsung