Dec. 9 (Bloomberg) -- Samsung Electronics Co., the world’s largest maker of memory chips, liquid-crystal displays and televisions, said the global recession is wiping out profits at those businesses this quarter.

The glut in the memory-chip market has worsened, making it “difficult” for Samsung to earn a profit from the product, Executive Vice President Chu Woo Sik, head of investor relations, said yesterday in San Francisco. The company is “struggling very hard” to make money from LCDs and falling prices have evaporated profitability from TVs, he said.

A failure to generate profit from semiconductors, screens and TVs would leave Suwon, South Korea-based Samsung relying on mobile phones as its only means of avoiding the company’s first quarterly loss on record. Samsung’s struggles may signal bigger shortfalls at Toshiba Corp. and LG Display Co. because Samsung produces memory chips and LCDs more cheaply than any rival.

“Profit expectations for Samsung keep going down, but a fourth-quarter loss as a whole would be quite negative for investor sentiment,” said Baik Jae Yer, a fund manager at Korea Investment Trust Management Co. in Seoul, who oversees $3.5 billion in equities in Seoul. “Samsung can’t be unaffected by the global economic slowdown, even if it may fare better than its competitors.”

Samsung fell 1.6 percent to 456,500 won on the Korea Exchange as of 11:20 a.m. Seoul time, underperforming the 0.3 percent decline in the MSCI Asia Pacific Index. The stock has dropped 18 percent this year.

Chu declined to comment on whether the company, also the world’s second-largest maker of mobile phones after Nokia Oyj, is poised to report a fourth-quarter loss as a whole.

Conservative Spending Plans

Chu said that the company will be very conservative with its budget for new plants and equipment next year, after spending about 10 trillion won ($6.9 billion) in 2008. The company will have to pay at least 6 trillion won just to keep its plants up to date, he said.

Analysts forecast fourth-quarter profit will tumble 63 percent to a seven-year low of 818 billion won, based on the median of 12 estimates compiled by Bloomberg in the past month. Operating profit, or sales excluding the cost of goods sold and administrative expenses, may fall 76 percent to 431 billion won.

Samsung’s smallest profit since Korean companies began reporting quarterly results in 2000 was the 402.6 billion won posted in the fourth quarter of 2001. Annually, Samsung has been profitable every year, even during the 1997-1998 Asian financial crisis, according to Bloomberg data stretching back to 1985.

Chip Unit

The semiconductor division will lose 102 billion won during the October-to-December period because of falling prices, according to the Bloomberg survey. Chip losses will persist until the first quarter, according to Citigroup Inc., BNP Paribas SA and Deutsche Bank AG. That business, Samsung’s largest by profit in 2007, last posted a loss seven years ago.

Benchmark computer-memory chip prices have tumbled 66 percent this year to a record low, pushed down by an industry glut, according to DRAMexchange Technology Inc. Prices for flash memory that stores songs and pictures in cameras and digital- music players have slumped 68 percent, according to the Taipei- based operator of Asia’s biggest spot market for chips.

Prices have “fallen to a level that would be deemed theoretically impossible in a free market,” Matt Evans, a CLSA Ltd. analyst, said in a report this month. Evans predicted that Samsung would post chip losses for the next three quarters.

Reducing Goals

Samsung had originally planned to double output of computer- memory chips this year, when measured by their capacity, Chu said. It will fall short of that target, increasing its so-called bit production by 80 percent to 90 percent, he said.

Hynix Semiconductor Inc., the world’s second-largest computer-memory chipmaker, will probably post a record operating loss in the fourth quarter, according to a separate survey of analysts. Infineon Technologies AG, Europe’s second-biggest maker of chips, reported a seventh straight quarterly loss last week.

Samsung’s fourth-quarter profit from LCDs, used in computer monitors and TVs, probably declined 85 percent to 140 billion won as oversupply sent prices lower, according to the Bloomberg survey. Earnings from displays will probably tumble 90 percent next year, according to BNP’s Peter Yu.

Samsung’s telecommunications division will probably post a 15 percent profit decline, hurt by slowing demand for mobile phones, according to the Bloomberg survey. This month, Nokia predicted that mobile-phone industry sales will decline 5 percent or more in 2009, the first contraction since 2001.

“The economic situation is pretty bad and the peak season has passed so it will be difficult for the time being,” Korea Investment Trust’s Baik said. “Nobody is expecting demand to get better next year, so the key will be on the supply side.”

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net; Kevin Cho in Seoul at kcho2@bloomberg.net

Last Updated: December 8, 2008 21:21 EST