SK Hynix warns the chip party may soon be over

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SK Hynix warns the chip party may soon be over

SK Hynix warned yesterday that soaring prices for computer-memory chips may end soon, as a yearlong rally helped it report a forecast-beating record quarterly profit and gross margin.

The key Apple supplier’s prediction of a slowdown in chip-price growth means investors may have to brace for more normal profits, although the industry remains well-placed to cope with any downturn.

Prices of commodity dynamic random access memory (DRAM) chips, used in personal computers, have almost doubled so far this year even as global PC shipments slumped, thanks to years of cautious investment designed to keep supply in check and the conversion of factory capacity to more profitable chips used in smart phones and tablets.

“We expect DRAM shortages will continue even into the fourth quarter, and in normal circumstances, prices have to go up,” said Park Nae-hak, vice president and head of Hynix’s mobile and consumer marketing. “But given that they’ve been rising for the past year, memory chip prices now account for too big a portion of our clients’ total materials costs. So there’s a bit of uncertainty regarding how much higher prices can actually go from here.”

Park said Hynix had already finalized most of its DRAM sales contracts for the third quarter at higher prices, thanks to chip shortages. DRAM chips are 73 percent of the company’s total sales.

Reflecting concerns of slowing growth, sellers pounced when Hynix shares rose as much as 2.5 percent after the record earnings were announced. The stock was up 0.18 percent yesterday to close at 28,600 won ($25.63).

The company said it expected shipments of mobile DRAM chips to surpass computer DRAMs for the first time next year, reflecting the shift in consumer electronics away from bulky PCs and toward tablets and smart phones.

In response to growing mobile demand, Hynix said it would increase flash memory chip output and forecasts that its shipments of the semiconductors used in mobile devices would rise about 20 percent in the third quarter. It expects DRAM chip shipments to grow only about 5 percent.

Manufacturers are rushing to boost flash memory chip production to ride a boom in the mobile-devices market driven by emerging economies like China, the world’s biggest smart-phone market, where strong demand for cheap handsets is offsetting slower high-end sales growth in more mature markets.

Toshiba said earlier this month it was considering investing up to 30 billion yen on new equipment to manufacture flash memory chips. Reuters
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