SK Hynix quarterly earnings also shock

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SK Hynix quarterly earnings also shock

SK Hynix is facing its own earnings shock as the price of memory chips collapses.

In an earnings report released Thursday, the company said its first quarter operating profit fell 68.7 percent year on year to 1.37 trillion won ($1.23 billion). Sales were down 22.3 percent and net profit declined 67.6 percent.

The announcement follows similar results from Samsung Electronics, the world’s No. 1 memory chip maker. It forecast in early April that its operating profit would fall 60 percent in the first quarter.

Compared to the previous quarter, the operating profit of SK Hynix was down 69.2 percent, while its sales retreated 31.9 percent and its net profit declined 67.6 percent.

The results were the worst for the company since the third quarter of 2016, when operating profit came in at 726 billion won.

A fall in the output and the prices of dynamic random-access memory (DRAM) and NAND flash memory chips, caused by overcapacity and lower demand, were blamed for the weak performance. DRAMs are used when low-cost, high-capacity memory is required, while NAND chips are used for long-term data storage.

SK Hynix is the world’s No. 2 maker of memory chips.

“Due to the seasonal slowdown in demand and weak demand from server customers, DRAM shipments retreated 8 percent while the average selling price dropped 27 percent compared to the previous quarter,” SK Hynix announced in a regulatory filing on Thursday.

Shipments of NAND chips fell 6 percent compared to the previous quarter, while their average selling price plunged 32 percent due to high inventories and fierce competition from NAND suppliers like Samsung Electronics, Intel and Toshiba.

“Supplies of 3D NAND flash memory chips have jumped after chipmakers started to provide the chips in a more stable manner starting around 2016 and 2017,” said an SK Hynix spokesperson. “That, along with the weak demand, eventually led to higher inventories for both suppliers and buyers.”

Contracted prices in the NAND flash product category in the first quarter were impacted by weak server demand, an extended smartphone replacement cycle and lower-than-expected sales of Apple’s new phones, according DRAMeXchange, a Taiwan-based market research firm.

SK Hynix forecasts its performance will improve in the second quarter, with DRAM demand for servers gradually recovering as inventories clear.

SK Hynix expects DRAM demand for mobile devices to increase on the purchase of high-capacity chips by smartphone makers. The company believes the commercialization of 5G smartphones and high-capacity content, like cloud gaming, will help drive sales.

SK Hynix plans to raise its competitiveness in NAND chips by switching its focus from 2D to 3D. The 3D chips are cheaper to make and more in demand. The company also hopes to expand its influence in the mobile market in the second half of this year.

“Performance will continue to drop in the second quarter, but the industry itself will show an improvement,” said analyst Song Myeong-seop from Hi Research. “The lower price of memory chips will boost their demand, resulting in a market recovery, although sales may continue to struggle.”

“The planned establishment of 61 new large-scale internet data centers starting in the second half will also boost demand for memory chips. Last year, 62 new data centers were established. These centers, where many servers are installed, are strong growth engines that drive demand for memory chips.”

“Starting in the second quarter, inventory levels will decline and the fall in the prices of DRAMs and NANDs will slow,” wrote analyst Choi Do-yeon from Shinhan Investment in a report released Tuesday. “Quarterly performance is forecast to start improving in the third quarter.

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