SK Hynix Confident of Memory Chip Recovery After Quarterly Profit Drop

SK Hynix said on Thursday it was confident of a recovery in memory chips later this year due to rising demand from data centres, after the South Korean chipmaker posted its smallest quarterly profit in more than two years.

The notoriously cyclical memory chip industry is in the midst of a downturn after a two-year boom, as slowing demand for gadgets such as smartphones pulls down chip prices.

"There is now stronger evidence which led us to a stronger conviction regarding our forecast" for DRAM chips, Executive Vice President Cha Jin-Seok said during an earnings briefing.

For instance, Cha said, internet data centres using DRAM chips for servers are likely to raise investment "significantly" from the third quarter of 2019. Also, smartphone makers are adopting high-density chips, he said, to counter a market slump.

Shares of SK Hynix were 2.8 percent higher after the firm discussed its outlook, versus the wider market's 0.3 percent decline as of 0144 GMT.

"I think the upward cycle of data centre customers' investment is indeed coming, as the company explained," said analyst Eo Kyu-jin at eBest Securities. He said about 24 percent of SK Hynix's revenue comes from DRAM server chips, used mainly in data centres.

The world's second-biggest memory chip maker by sales reported a 69 percent drop in first-quarter operating profit to KRW 1.4 trillion ($1.21 billion), matching analyst estimates, and blaming weak memory chip prices. Revenue fell 22 percent.

Earlier this month, market leader Samsung Electronics forecast its lowest quarterly profit in over two years, with a glut in memory chips being a primary cause. Samsung also expects demand to improve later in the year.

Price falls
Prices for DRAM chips, which help devices perform multiple tasks, declined more than 20 percent in the first quarter from three months earlier, and are likely to fall as much as 20 percent in the second quarter, showed data from industry tracker DRAMeXchange.

Prices of NAND memory chips, which provide long-term data storage, lost 20 percent in the first quarter, DRAMeXchange said.

Such price declines are likely to ease into the second half of this year, SK Hynix said during the earnings briefing. And next year, the memory chip market should experience a "big boom" with the launch of fifth-generation (5G) telecommunication networks and fresh data centre investment, said SK Hynix's Cha.

"We will focus on reducing raw material costs and securing competitiveness in the market where memory demand uncertainty and hope for demand recovery co-exist," SK Hynix said.

© Thomson Reuters 2019