SK hynix beats market estimates on strong server chip demand

SK hynix beat market estimates in the first quarter as robust demand for server chips cushioned the impact of the coronavirus pandemic and the seasonal weakness of dynamic random-access memory (DRAM) demand.

In the earnings report announced on Thursday, its net profit fell 41 percent on year to 649.1 billion won ($527.5 million) during the January-March period.

Despite the contraction, the figure beat the 395.4 billion won average of 21 analyst estimates compiled by market tracker FnGuide.

The chipmaker posted 7.2 trillion won in revenue during the period, up 6 percent over a year ago.

The result is much higher than the average market expectations at 6.9 trillion won.

Operating profit shrank 41 percent to 800.3 billion won. The figure is higher than the estimates averaged of 509.1 billion won.

The world’s third-largest memory chipmaker attributed the better-than-expected outcome to a surge in demand for server DRAMs.

“DRAMs faced negative seasonal factors on top of the impact of the coronavirus dragging down the demand for mobile DRAMs,” the company said in a statement.

“But the increasing demand for server DRAMs offset the decline as DRAM shipments only fell 4 percent compared to the previous quarter and its average selling price rose 3 percent.”

The shipments of NAND flash memory chips jumped 12 percent compared to the previous quarter as demand for solid-state drives for servers was strong.

A jump in the number of people working from home globally has translated into a rise in server demand from corporate data centers.

The chipmaker, however, warned of “unprecedented uncertainties” down the road, as the coronavirus lockdown has brought some economies to virtual standstills.

To better respond to the fluctuating demand in the future, SK hynix will reduce its investment in facilities while retasking some DRAM manufacturing capacity for the making of image sensor chips.

The strategy is in line with the grim prospects for the industry and the outlook for the market.

“At this point, the global semiconductor market appears to be headed for another decline in 2020, due to the impact of the coronavirus on semiconductor supply and demand,” said Andrew Norwood, research vice president at Gartner.

“Covid-19 has distorted the supply chain and manufacturing operations across the world and will lead to a drastic drop in consumer and enterprise spending across most areas with a few exceptions.”

He expects global semiconductor sales to decline 0.9 percent in 2020, down from the previously forecast growth of 12.5 percent at the end of 2019.

Shares in SK hynix declined 1.55 percent in trading on the Korea Exchange on Wednesday to close at 82,600 won.

PARK EUN-JEE [park.eunjee@joongang.co.kr]