SEOUL (Reuters) -- Samsung Electronics, the world's top memory chip maker, reported its worst quarterly profit in four years after steep declines in computer memory chip prices overshadowed improvements in flat screens.

But the outlook for the second half is brighter, with the market for dynamic random access memory (DRAM) chips, used in personal computers, expected to recover on seasonal demand, along with strong sales of mobile phones and flat screens. "Third-quarter results should be better across the board, with LCD division growing further and handset margins improving," said Lee Min-Hee, an analyst at Dongbu Securities. "DRAM results in the third quarter will obviously be better than in the second." Shares in Samsung, the most valuable technology company outside of the United States, rallied 6.4 percent to 687,000 won, its highest close in more than a year, on a media report that Samsung might become the target of a hostile takeover. The wider market rose 2.8 percent. The Chosun Ilbo quoted an unidentified high-ranking Samsung official as saying the company had received information that U.S. billionaire investor Carl Icahn and other hedge funds were readying bids for the firm. Chu Woosik, executive vice president of Samsung's investor relations, said it was not aware of such a move by Icahn and said the company has an existing strategy in place to cope with a hostile bid attempt. ------------------------ Brighter future for chips Samsung earned a net profit of 1.42 trillion won ($1.55 billion) in the second quarter, down 5 percent from around 1.5 trillion a year ago. The figure was higher than the 1.29 trillion won net profit forecast from 10 analysts surveyed by Reuters, but the worst for the company since the second quarter of 2003. Operating profit was 911 billion won, against 1.42 trillion a year ago and a forecast of 880 billion. The figure was the lowest since the fourth quarter of 2001. Strength in Samsung's overseas units and a gain from the 576 billion won initial public offering of affiliate Samsung Card are thought to have softened the blow on the net profit level. Sales were 14.63 trillion won, up from 14.1 trillion. Reflecting its poor performance, the stock rose just 0.5 percent in the second quarter, trailing the KOSPI's 20 percent rise. Analysts expect Samsung to post a net profit of 3.85 trillion won in the second half of 2007, down from 4.53 trillion in the second half of 2006, according to Reuters Estimates. Encouraged by a strong DRAM market in 2006, manufacturers kept churning out the chips at a brisk pace in 2007 despite sluggish demand, leading to an oversupply and steep price declines, estimated at more than 40 percent. Samsung said margins in its semiconductor division fell to 8 percent, from 12 percent in the first quarter and 22 percent a year ago. But it forecast DRAM prices to rise by a mid-to-high single digit in the third quarter, and NAND flash chip prices to rise by a mid-single digit. It said DRAM shipments should rise over 100 percent for 2007 and NAND shipments jump over 130 percent