SEOUL - Samsung Electronics, the world's top maker of memory chips and LCD screens, posted a 72 percent drop in quarterly profit that was well ahead of market expectations, and remained cautious on its outlook for the
year.

The battered memory chip sector is showing some signs of emerging from a severe downturn as big production cuts have helped eased a supply glut, but Samsung held off from predicting sharp improvements in demand or prices.

"We believe it is still premature to expect the global economy, as well as consumer demand, recovery in the near
term," said Robert Yi, Vice President and head of Investor Relations.

Samsung said it aimed to outperform the market in semiconductors and mobile phones in the near term.

Samsung shares fell 3.8 percent by 0250 GMT in a flat market.

Shares in South Korea's biggest company have risen 39 percent this year through Thursday, beating the broader market's 22 percent gain.

The stock had gained in recent sessions on expectations the earnings could top analysts' forecasts.

Smaller rival Hynix Semiconductor Inc, the world's No.2 memory chip maker, earlier reported a sixth straight quarterly loss, but forecast an upturn as chip prices recover.

Samsung's semiconductor business posted a bigger-than-expected 17 percent operating loss margin, following a 14 percent loss margin in the fourth quarter.

Samsung forecast prices of its mainstay dynamic random access memory (DRAM) chips would rise in the low single digits in the current second quarter, but added that oversupply may prevent a meaningful improvement in prices.

"The memory chip market seems to have passed the most difficult stage ... but it's too early to predict when prices
will peak," said S.R. Kwon, analyst at Hana Daetoo Securities.

"It should also be noted that the rise comes from limited supply rather than increasing demand."

Samsung's January-March net profit fell to 619 billion won (S$680 million) from 2.19 trillion won (S$2.4 billion) a year ago, but was well above an average forecast for 149 billion won (S$163 million).

Samsung booked a surprise operating profit of 148 billion won (S$162 million), trumping expectations for a 152 billion won (S$167 million) loss, but this was well below last year's 2.15 trillion won (S$2.36 billion) profit.

Sales of 18.6 trillion won (S$20.46 billion) also beat expectations.

Extreme caution

Samsung, which ranks behind only Nokia in mobiles, was helped by a strong increase in margins in its telecoms division to 12 percent from 2 percent in the previous quarter.

The company said it aimed to continue to outperform the weak broader market by introducing high-end mobiles and through strong marketing.

Samsung's display division reported a loss margin of 8 percent, unchanged from the previous quarter.

Samsung said its LCD unit would be running at full capacity in the second quarter, but cautioned that prices may fall again if all manufacturers ramp up production, triggering more oversupply.