Company posts smallest quarterly profit in four years after declines in memory chip prices overshadow improvements in flat screens.
But the outlook for the second half is brighter, with the market for dynamic random access memory (DRAM) chips, used in personal computers, expected to recover on seasonal demand, along with strong sales of mobile phones and flat screens.
"Third-quarter results should be better across the board, with LCD division growing further and handset margins improving," said Lee Min-hee, an analyst at Dongbu Securities.
"DRAM results in the third quarter will obviously be better than in the second," he said.
Shares in Samsung, the most valuable technology company outside of the United States, rose 5 percent, leading the wider market's 2 percent gain on a media report that Samsung might become the target of a hostile takeover.
The Chosun Ilbo quoted an unidentified high-ranking Samsung executive as saying the company had received information that U.S. billionaire investor Carl Icahn and other hedge funds were readying bids for the firm.
Chu Woosik, executive vice president of Samsung's investor relations, said it was not aware of such a move by Icahn and said the company has an existing strategy in place to cope with a hostile bid attempt.
Samsung earned a net profit of 1.42 trillion won ($1.55 billion) in the second quarter, down 5 percent from around 1.5 trillion a year ago.
The figure was higher than the 1.29 trillion won net profit forecast from 10 analysts surveyed by Reuters, but the worst for the company since the second quarter of 2003.
Operating profit was 911 billion won, against 1.42 trillion a year ago and a forecast of 880 billion. The figure was the lowest since the fourth quarter of 2001.
Strength in Samsung's overseas units and a gain from the initial public offering of affiliate Samsung Card are thought to have softened the blow on the net profit level.
Sales were 14.63 trillion won, up from 14.1 trillion.
Analysts expect Samsung to post a net profit of 3.85 trillion won in the second half of 2007, down from 4.53 trillion in the second half of 2006, according to Reuters Estimates.
Encouraged by a strong DRAM market in 2006, manufacturers kept churning out the chips at a brisk pace in 2007 despite sluggish demand, leading to an oversupply and steep price declines, estimated at more than 40 percent.
Samsung said margins in its semiconductor division fell to 8 percent, from 12 percent in the first quarter and 22 percent a year ago.
But it forecast DRAM prices to rise by a mid-to-high single digit in the third quarter, and NAND flash chip prices to rise by a mid-single digit. It said DRAM shipments should rise more than 100 percent for 2007 and NAND shipments jump over 130 percent.
Samsung, also the world's third-largest maker of mobile phones after Nokia and Motorola, sold record 37.4 million phones in April-June, compared with 34.8 million in the first quarter, as it strengthened its product line in the medium- and low-end markets.
Margins in the telecommunications division fell to 8 percent from 13 percent on lower prices and higher marketing costs, but Samsung said it expected to post a double digit-margin in the third quarter.
Samsung also raised its full-year handset shipment forecast to at least 150 million units from a previous forecast of more than 133 million.
In contrast, Motorola said on Wednesday it no longer expected its mobile phone business to be profitable this year, blaming weak sales in Asia and Europe.
Sony Ericsson, the world's fourth-biggest mobile phone maker and a joint venture of Sweden's Ericsson and Japan's Sony, missed expectations after it too shifted focus to sales of lower-priced phones.
The world's biggest maker of large liquid crystal display (LCD) panels posted an operating profit margin of 9 percent in its display division thanks to an upturn in the market, compared with 3 percent a year ago and in the first quarter.
"The company issued strong guidance on price recovery for DRAM and especially NAND (flash chips). If it achieves these targets we can expect a good third quarter," said Song Myung-sup, a tech analyst at CJ Investment and Securities.