PREVIEW-Samsung Elec Q3 profit seen hamstrung by weak chips

* What : Samsung Electronics Q3 earnings

* When : Friday, Oct 12

* Weak DRAM chips offset stellar flat screens, solid handsets

By Marie-France Han

SEOUL, Oct 9 (Reuters) - Samsung Electronics (005930.KS), the world's top memory chip maker, is set to post lukewarm quarterly results on Friday as sluggish computer memory chip performance likely offset an impressive showing in flat screens.

The outlook for the rest of the year is weighed down by expectations of further declines in prices of DRAM chips, widely used in personal computers, and NAND flash chips, used in electronic gadgets like Apple's (AAPL.O) iPod and iPhone.

An improvement is expected only by the middle of next year.

Samsung, also the world's top maker of large-size LCD screens, should reap hefty profits from its booming flat screen division, but the unit alone is not going to be able to prop up sagging profits in other businesses, analysts said.

"Third-quarter performance will be better than the second quarter, but far from what was expected a few months ago," said M.S. Song, an analyst at CJ Investment & Securities.

"We expect the fourth quarter to be worse than the third, and weakness should continue through the first quarter of 2008."

After a painful first half marked by oversupply and steep price declines, makers of dynamic random access memory (DRAM) chips had hoped for a rebound in the third quarter. While prices did bounce back in the summer, they started tumbling again in September with no sign of a meaningful recovery before next year.

Samsung, the most valuable technology company outside the United States, is expected to report a net profit of 2.13 trillion won ($2.33 billion) in the third quarter, compared with 2.19 trillion a year ago and 1.42 trillion in the April-June period, according to a Reuters poll of 10 analysts.

Sales are seen at 16.47 trillion won, up from 15.22 trillion.

Reflecting the poor DRAM performance, shares in Samsung, South Korea's biggest stock with a market value of about $86 billion, rose a meagre 1.6 percent in the third quarter, trailing the broader market's 11.6 percent rise.

Analysts predict Samsung will post a net profit of 8.29 trillion won in 2008, up from an estimated 7.11 trillion in 2007, according to Reuters Estimates, helped by an expected recovery in DRAM prices later next year as capacity growth slows.

Samsung's DRAM rivals, including Hynix Semiconductor (000660.KS) and Taiwan's top DRAM makers, Powerchip Semiconductor Corp (5346.TWO) and Nanya Technology Corp (2408.TW), are also poised to report mediocre September quarters.

Powerchip, a manufacturing partner of Japan's Elpida Memory Inc (6665.T), is expected to post a 58 percent fall in quarterly net profit, according to a mean forecast of four analysts surveyed by Reuters Estimates, while Nanya's net profit is seen down 68 percent year-on-year.

LCD, HANDSET NOT ENOUGH

"Results in DRAM chip will be under expectations, both in terms of price and shipments," said Lee Min-hee, an analyst at Dongbu Securities.

Hyundai Securities expects DRAM prices to have dropped by 2 percent in the third quarter, a far cry from the company's forecast of a mid- to high-single-digit rise.

Things are about to get even worse for both types of memory chips, with Dongbu's Lee expecting price drops of 15 percent for DRAM and 20 percent for NAND in the fourth quarter due to declining seasonal demand.

In sharp contrast to chips, Samsung's LCD business is likely to post an excellent performance, helped by a spectacular market turnaround following investment cutbacks.

Operating profit margin is expected at between 13 and 15 percent, compared with a meagre 5 percent a year ago.

Samsung, also the world's second-largest maker of mobile phones after Nokia (NOK1V.HE) and ahead of Motorola (MOT.N), is likely to show continued gains from the successful launch of new models and its push into the medium-to-low end of the market.

It is expected to have sold more than 42 million phones in the quarter, another record, after selling 37.4 million in April-June. Margins in the telecommunications division are likely to be a bit below 10 percent, down from 11 percent, as lower prices hit its bottom line.