Samsung Electronics, the world's top maker of memory chips and LCD screens, reported a 72 percent drop in quarterly profit and said it was too early to call a recovery in demand or prices.

But a rebound in mobile phone margins helped Samsung, the world's No. 2 mobile maker after Nokia, beat market profit forecasts that had been sharply lowered because of a steep downturn in the chip industry that has left all manufacturers selling chips for less than they cost to make.

The memory chip sector is showing some signs of emerging from that downturn as big production cuts have helped eased 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 market's 1.1 percent loss. Shares in South Korea's biggest company had risen 39 percent this year, beating the KOSPI's 22 percent rise, with expectations that earnings could top forecasts fuelling recent gains.

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 14 percent loss margin in the fourth quarter and a far cry from a 31 percent profit margin 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, mostly used to power personal computers, would rise in the low single digits this quarter, though oversupply would stifle big price rises.

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. It should also be noted that the rise comes from limited supply rather 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 and marketing.

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. Samsung 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 Jonathan Hopfner and Ian Geoghegan)

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