UPDATE 4-Samsung Q1 profit tumbles to near 2-yr low, chips to fuel rebound

* Sees Q1 op profit at 2.9 trln won vs 2.9 trln won
SmartEstimate

* Estimates Q1 sales at 37 trln won vs 38 trln won consensus

* Memory chips to lead earnings rebound from Q2 -analysts

* Shares down 0.7 pct vs 0.5 pct drop in KOSPI

(Adds details, comments, shares)

By Miyoung Kim

SEOUL, April 7 (Reuters) – Profits at Samsung Electronics
are set to rebound on a recovery in the memory chip
market after operating profit fell to its lowest level in almost
two years in the first quarter on tumbling flat screen and TV
prices.

While the outlook for the world’s top maker of memory chips
and flat screens will improve in the second quarter, the South
Korean firm faces fierce competition for its smartphone and
tablet PCs from the likes of Apple Inc .

“The memory chip sector will lead Samsung Electronics’
earnings recovery, but we are more cautious on their finished
products like handsets, tablet PCs and televisions,” said Lee
Min-Hee, a senior analyst at Dongbu Securities.

“Smartphone and tablet PCs are struggling due to competition
from Apple, and television demand is also slow.”

Samsung is the first major Asia technology firm to release
quarterly earnings estimates after the March 11 earthquake and
tsunami in Japan raised uncertainty about the long-term effects
of the disaster on manufacturers. [ID:nL3E7EE05V]

Disruptions to the global supply chain threaten to create
bottlenecks in some key components for Japanese factories and
analysts say South Korean companies such as Samsung, Asia’s most
valuable technology firm with a market value of around $142
billion, may benefit as customers look for new suppliers.

“It’s hard to predict whether the net effect of the quake on
Samsung will be plus or minus at the moment, but with the yen
under pressure, Japanese manufacturers could strongly rebound
and take the momentum back as we approach the second half of the
year,” said Jung Kyun-sik, a fund manager at Eugene Asset
Management, which owns Samsung shares.

“For Samsung, the level of risks is rising — the won is
getting stronger and all its businesses but chips are facing a
negative business environment.”

The won rose as high 12.66 per yen on Thursday, its highest
level against the Japanese currency since May 2010.

Samsung estimated its January-March operating profit would
be in a range of 2.7 trillion won to 3.1 trillion won ($2.5
billion to $2.8 billion).

That is below the 3.2 trillion won consensus by Thomson
Reuters I/B/E/S. But the middle of Samsung’s range is in line
with StarMine SmartEstimates, which places more weight on recent
forecasts by top-rated analysts and expected 2.9 trillion won.

That would be Samsung’s lowest profit since the second
quarter of 2009, and a fall of 34 percent from a year ago and 4
percent from the preceding quarter. It estimated sales at 37
trillion won.

Samsung shares fell about 0.7 percent on Thursday, in line
with a selloff in the broader market . The stock has
fallen 9 percent from a record high hit in late January, lagging
a 1 percent rise in the benchmark KOSPI.

The guidance comes before detailed quarterly results in late
April.

CHIP OUTLOOK BRIGHTER

A protracted suspension of flat-screen TV production in
Japan after the earthquake could result in lost revenue for
Samsung. It produces screens for Sony Corp , its biggest
customer generating nearly 7 trillion won in sales annually.

But Samsung’s bread-and-butter semiconductor unit could
benefit from tighter supplies of computer chips after production
lines at some Japanese companies, including Samsung rival
Toshiba Corp , were shut down by the disaster.

Globally, Japan supplies more than a third of NAND-type
flash memory chips, used in tablets and smartphones, and 14
percent of computer memory chips.

Samsung’s chip unit is widely expected to bring in more than
60 percent of the company’s earnings in the first quarter.
Samsung controls nearly 40 percent of the global dynamic random
access memory (DRAM) and NAND flash memory market.

Contract prices of DRAM chips have risen 3 percent since the
quake and NAND chips have risen 15 percent. Global chip sales
are likely to grow by 7 percent to $325 billion this year, as
last month’s earthquake in Japan boosted prices of computer
memory chips, IHS iSuppli says. [ID:nL3E7F53CV]

All in, the recovery in chip prices will help push Samsung’s
second-quarter operating profit up to 4.0 trillion won,
according to a consensus forecast by Thomson Reuters I/B/E/S.

FIERCE COMPETITION FOR PHONES, TABLETS

Profit growth in Samsung’s telecoms business may slow due to
weaker sales momentum for its tablets and competition from
Apple, which introduced its iPad 2 with aggressive pricing plans
last month, analysts said.

Samsung makes the Galaxy S smartphone and Galaxy Tab tablet
and on Wednesday lowered its Wi-Fi only tablet price for U.S.
customers to $349.99.

“The exchange rate may be a factor in the second-quarter
earnings, while eyes are on handset profit margins,” said Lee
Seung-woo, an analyst at Shinyoung Securities.

Samsung is Apple’s strongest competitor in the booming
tablet market with models in three sizes, but is seen playing
catch-up.

To better compete with Apple, Samsung redesigned within
weeks its new 10.1-inch tablet, first introduced in February, to
make it the thinnest in the category after Apple set the trend
with its iPad 2.

Still, analysts estimate Apple sold about one million units
of the iPad 2 in the first weekend of its U.S. launch last
month. By comparison, Samsung may have sold a similar number of
Galaxy Tabs in the past three months and sales growth is
expected to be weak.

Follow-up models will be on the market in June at the
earliest.

(Additional reporting by Hyunjoo Jin; Editing by Jonathan
Hopfner and Dhara Ranasinghe)

UPDATE 4-Samsung Q1 profit tumbles to near 2-yr low, chips to fuel rebound