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SK Hynix Forecasts Recovery After Posting Sharp Profit Decline

Sam Kim
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SK Hynix Forecasts Recovery After Posting Sharp Profit Decline

(Bloomberg) -- SK Hynix Inc., a supplier to Apple Inc., posted a steep decline in operating profit but forecast a recovery in demand this quarter for memory chips used in smartphones and data centers.

Operating income in the first quarter fell 69 percent to 1.37 trillion won ($1.2 billion), compared with the 1.5 trillion won expected by analysts. Still, the Icheon, South Korea-based company said DRAM demand is rebounding in the current quarter and the improvements should continue in the second half of the year. Shares rose as much as 3.8 percent.

Hynix’s forecast is a sign that data-centers customers are working through high inventories of memory chips, while lower prices have sparked demand from smartphone makers and other customers. The company said investments in servers should recover later this year.

“Server demand growth will increase significantly in the third quarter after rising slightly in the second quarter,” Sean Kim, vice president and head of DRAM marketing, said in a conference call. “We’re seeing clear signs.”

Hynix’s comments add evidence that the memory industry has reached a low point and that prices are likely to improve in the second half of 2019. Apple cut its sales forecast earlier this year and Texas Instruments Inc. cautioned this week that a rebound in customer demand for its chips may take time to materialize. In early April, Samsung Electronics Co. reported preliminary earnings that dropped the most in more than four years.

Contract prices for 32-gigabyte DRAM server modules fell 38 percent in the March quarter, according to InSpectrum Tech Inc, while prices for 128 gigabit MLC NAND flash memory chips dropped 23 percent.

“The slowdown in the expansion of data centers is temporary.” Eo Kyu-jin, an analyst at Ebest Investment and Securities Co., said in an April 15 report. “The decline in memory prices will propel growth in demand.”

Apple is Hynix’s largest customer, providing about 13 percent of its sales, according to data compiled by Bloomberg. Intel Corp. and Huawei Technologies Co. also receive supplies from Hynix.

Together with Samsung and Micron Technology Inc., Hynix controls the bulk of the market for DRAM chips, used to store data on personal computers and servers. Any cuts to chipmakers’ capital expenditures could boost falling memory prices. Samsung said in January it was reducing spending this year to focus on the profitability of its memory operations, and Micron said last month it was curtailing output.

To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Jeff Muskus, Peter Elstrom

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