Samsung warns of weakened demand for chips, displays amid Apple dispute

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Apple manufacturing partner Samsung has warned of weak growth on chip orders and a downturn on displays, in what could be construed as a evidence of Apple's alleged plans to transition component purchases away from the competitor with which it is currently engaged in a patent infringement suit.

Samsung executive Kwon Oh-hyun cautioned that the company's semiconductor and flat-panel display businesses, which provided 70 percent of Samsung's operating profit last year, are experiencing difficulties, The Wall Street Journal reports.

"In the past, the semiconductor market tended to be weaker in the first half and stronger in the second half, but for this year, it is likely to remain flat throughout the latter half," Kwon recently told Korean reporters. The executive, who has been serving as chief of the company's semiconductor business, is set to head up Samsung's newly combined component operations.

Though reports last week had suggested that the move was a financial decision to hide losses in Samsung's display unit among profits from its semiconductor business, Kwon's most recent comments suggest that the company's chipmaking operations may be faltering as well.

Samsung is expected to announced 4 trillion won ($3.76 billion) in earnings this quarter, down from a record second-quarter operating profit of 5.01 trillion won ($4.7 billion) last year. Analysts believe the company's flat-panel business will lose money for the second quarter in a row.

Though electronics sales usually rise in the second half of the year, the memory market appears to be oversupplied. Executives from Hynix Semiconductor, which competes with Samsung in producing memory chips, announced last month that second-quarter operating profit would likely miss forecasts.

Demand for LCDs has also dropped off, even as a number of LCD factories in China are scheduled to open. Recent reports from industry publication DigiTimes suggested large-size LCD and LED display manufacturers have reduced output in response to weakening demand and falling prices.

It remains unclear what effect Apple's share of orders will have on Samsung's outlook. The company is expected to place $7.8 billion worth of orders with Samsung this year.

Apple's suppliers have reportedly begun gearing up for production of next-generation versions of the iPhone and iPad, though it's possible that components for the devices have already been stockpiled for next quarter.

Meanwhile, Apple and Samsung are locked in a heated legal battle after the Cupertino, Calif., company sued the Korean electronics giant in April, alleging that Samsung had copied the look and feel of the iPhone and iPad. Last week, the iPhone maker filed for a preliminary injunction that would block for of Samsung's products while the case is being resolved.

Apple executives maintain that, in spite of the dispute, Samsung remains a valuable partner in supplying components for the devices. But, rumors have swirled that Apple is planning to move away from Samsung when it begins production of the so-called "A6" processor in 2012. Apple will reportedly turn to Taiwan Semiconductor Manufacturing Company for production of the chip.