Samsung Electronics held off calling a recovery in its memory chip and flat panel businesses, though its mobile phone margins have overtaken those of market leader Nokia.

The world's biggest maker of LCD panels and memory chips used in computers reported a 72 percent drop in quarterly profit, but a rebound in phone margins helped beat forecasts that had been sharply lowered amid a steep downturn in the chip industry.

There are signs that the slump, which has left manufacturers selling memory chips for less than they cost to make, may be reversing as big production cuts are easing a supply glut, though Samsung remains cautious.

We believe it is still premature to expect a global economy, as well as consumer demand, recovery in the near term, said Robert Yi, head of Samsung's investor relations, adding a sharp rebound in memory chip or LCD markets was unlikely.

Samsung's full-year net profit is expected to halve to 2.7 trillion won ($2 billion).

Samsung shares fell 5.6 percent on Friday, trailing the wider KOSPI index's 1.1 percent drop. Shares in South Korea's biggest company had risen 39 percent this year, fueled in recent sessions by expectations that earnings could top forecasts. The main index had gained 22 percent this year through Thursday.

Smaller rival Hynix Semiconductor Inc, the world's No.2 memory chip maker, earlier reported a sixth straight quarterly loss but forecast an upturn as chip prices recover.

Samsung's semiconductor business posted a 17 percent operating loss margin, worse than the previous quarter and well down from 31 percent in late 2006, when the volatile chip industry was in an upcycle.

The company forecast prices of its mainstay dynamic random access memory (DRAM) chips would rise in the low single digits this quarter, though oversupply would stifle big price increases.

The memory chip market seems to have passed the most difficult stage ... but it's too early to predict when prices will peak, said S.R. Kwon, analyst at Hana Daetoo Securities, noting prices had risen more on limited supply than increasing demand.

Research firm iSuppli, which rates near-term DRAM market conditions as negative, has forecast memory chip prices would stabilize this year despite acute oversupply.

Samsung's January-March net profit tumbled to 619 billion won ($458.1 million) from 2.19 trillion won a year ago, but was well above an average forecast for 149 billion won.

Operating profit was 148 billion won, well below last year's 2.15 trillion won, but trumping expectations for a 152 billion won loss. Sales of 18.6 trillion won also beat expectations.

STRONG HANDSETS

Samsung said its telecoms margins surged to 12 percent from 2 percent in the previous quarter, beating market leader Nokia's 10.4 percent margin, and it aimed to outperform a shrinking market by focusing on high-end phones.

Nokia last week reported a 27 percent drop in quarterly sales and a first-ever pretax loss, and reaffirmed a forecast for a 10 percent decline in global cellphone market volumes this year.

Prudential Investment & Securities analyst Kim Woon-ho said Samsung's mobile performance was a great feat considering the overall market shrank around 10 percent, adding that a weaker won currency and savings in marketing had helped margins.

Local rival LG Electronics, the world's No.3 mobile maker, said on Tuesday its mobile sales would rise more than 10 percent this quarter from the previous three months.

Samsung's liquid crystal display division reported a loss margin of 8 percent, unchanged from the previous quarter. The company said its LCD lines would run at full capacity this quarter, but cautioned prices may fall again if everyone ramps up output, triggering more oversupply.

No.2 LCD maker LG Display last week forecast a continued shortage of TV screens and a pick-up in panel prices.

($1=1351.1 Won)

(Additional reporting by Kim Yeon-hee, Miyoung Kim and Shin Jieun; Editing by Ian Geoghegan)

South Korea Electronics Samsung LG electronics