Oct. 24 (Bloomberg) -- Samsung Electronics Co., Asia's largest maker of chips, flat screens and mobile phones, posted its biggest profit drop in more than three years as oversupply drove down prices of semiconductors and displays.

Samsung shares tumbled 14 percent, the most in 13 years, after the Suwon, South Korea-based company reported today net income fell 44 percent to 1.22 trillion won ($863 million). That's the lowest profit since the second quarter of 2003.

The company cut its semiconductor spending plans after earnings at the division plunged 74 percent and said demand for liquid-crystal displays will slow this quarter. Samsung joins Sony Corp. among electronics makers reporting lower earnings this week as the credit crisis threatens to send the global economy into a recession.

``Samsung is affected by all the possible impacts from the global economic slowdown,'' said Choi Min Jai, who counts Samsung shares amid the $2 billion he helps look after at KTB Asset Management Co. in Seoul. ``It's inevitable that Samsung's growth will slow down for a while to come.''

Samsung lost 65,000 won to close at 407,500 in Seoul trading, erasing 9.57 trillion won in market value. The stock led the MSCI Asia Pacific Information Technology Index to a five-year low as the results came a day after Sony slashed its profit forecast.

Net income was in line with the 1.27 trillion won median estimate of 19 analysts surveyed by Bloomberg. Revenue and operating profit exceeded analyst estimates as the falling won, the worst performing major Asian currency this year, helped boost the value of Samsung's overseas sales.

Chip Profit Slumps

``Most electronics makers will see difficult times, but Samsung will be a relatively safer bet,'' said Baik Jae Yer, a fund manager at Seoul-based Korea Investment Trust Management Co., which oversees $5.6 billion in stocks. ``A weaker won will give Samsung an advantage over Japanese rivals such as Sony.''

Profit from chips slumped 74 percent to about 240 billion won as a glut drove down prices of memory chips used in computers and consumer electronics. Samsung, the world's second-largest chipmaker after Intel Corp., was projected to post 145 billion won in profit at the division, according to the Bloomberg survey.

Japan's Elpida Memory Inc., Powerchip Semiconductor Corp. and Nanya Technology Corp. have reported losses this month after prices of the benchmark dynamic random access memory chip fell 39 percent in the quarter ended Sept. 30 to record lows. Prices of NAND flash memory, used to store songs and pictures in electronics, have slumped 55 percent this year, according to Taipei-based Dramexchange Technology Inc.

Chip Consolidation

Falling prices may spur consolidation, Peter Yu, an analyst at BNP Paribas SA, wrote in a report last week. Micron Technology Inc., the largest U.S. memory-chip maker, on Oct. 13 agreed to buy a 35.6 percent stake in Inotera Memories Inc. from Qimonda AG for $400 million.

Samsung today predicted computer-memory prices will fall 30 percent in 2009 as global demand for personal computers increases 10 percent, less than its previous forecast for 13 percent growth.

Investment in the memory division this year will be less than the previously planned 7 trillion won, Chu Woo Sik, head of Samsung's investor relations department, told reporters today, without providing specific figures.

LCD Profit

Profit from LCDs, which accounted for a third of Samsung's operating income last year, declined 44 percent to about 380 billion won during the quarter, compared with the 323 billion won median estimate in the Bloomberg survey. The world's largest LCD maker reported revenue at the division climbed 20 percent.

Samsung joined LG Display Co., the second-largest LCD maker, in reporting its first profit decline from displays since the first quarter of 2007, as weaker demand and overproduction, spurred by record earnings last year, drove down prices in the $89 billion industry. Taiwan's Chi Mei Optoelectronics Corp. today reported its first loss in six quarters.

``It's uncertain whether profits will recover for memory and LCDs in the fourth quarter,'' Samsung's Chu said. ``For next year's total investment, we are looking at it from a conservative perspective.''

LG Display last week trimmed its planned spending for this year by 9 percent to 4.1 trillion won and said investment will fall further to as low as 1.5 trillion won in 2009. LG Display, Taiwan's AU Optronics Corp. and Chi Mei cut production last quarter to counter oversupply.

Telecom Earnings

Samsung, the world's second-largest maker of mobile phones, said earnings from telecommunications fell 15 percent to about 500 billion won, missing the median estimate in the Bloomberg survey by 10 percent. Sales increased 26 percent to 6.85 trillion won as handset shipments rose 22 percent to 51.8 million phones.

The profit margin from mobile phones will probably fall below 10 percent in the fourth quarter as the company increases marketing expenses, according to Robert Lea, an analyst at UBS AG.

Market leader Nokia Oyj last week posted a 30 percent slide in third-quarter profit as prices fell and it lost market share in high-end phones. LG Electronics Inc. and Sony Ericsson Mobile Communications Ltd. reported handset earnings that exceeded analyst estimates in the past week.

To contact the reporter on this story: Kevin Cho in Seoul at kcho2@bloomberg.net

Last Updated: October 24, 2008 04:23 EDT