SK hynix Q2 profit tipped to more than double on chip prices

SK hynix Inc., South Korea's second-largest chipmaker, is likely to see its second-quarter profit more than double from a year earlier, analysts here said Tuesday, thanks to strong memory chip prices amid the novel coronavirus pandemic.

SK hynix was expected to log 8.29 trillion won ($6.9 billion) in sales in the April-June period, up 28.6 percent from a year earlier, while its operating profit was estimated to surge 166 percent on-year to 1.7 trillion won over the period, according to the data from 13 brokerage houses compiled by Yonhap Infomax, the financial news arm of Yonhap News Agency.

The estimate also marks a sharp increase from the first quarter when it racked up 7.2 trillion won in sales and 800 billion won in operating profit.

Analysts said robust chip demand from data centers, sparked by the pandemic-driven stay-at-home economy, has led to a big jump in the second-quarter earnings.

"Contract prices of server and PC DRAM chips increased 20 percent and 14 percent on-quarter, respectively, which improved the company's profitability in the second quarter," No Geun-chang, an analyst at Hyundai Motor Securities, said.

Server and PC DRAM chips accounted for 55 percent of the company's total DRAM sales, No added.

According to DRAMeXchange, a market tracker under TrendForce, the contract price for 8-gigabit DDR4 DRAM, a benchmark price for the category, rose for five straight months, from $2.84 in January to $3.31 in May.

SK hynix was also projected to narrow its operating loss in the NAND flash business in the second quarter, thanks to increased sales of its enterprise solid state drive (SSD) products.

A NAND flash memory chip is a non-volatile computer storage medium that saves data without power. DRAMeXchange data showed the average contract price of 128-gigabit 16Gx8 MLC NAND flash was $4.68 last month, slightly up from $4.56 in January.

"Since the first quarter, SSDs made up 40 percent of the company's total NAND flash sales," Moon Ji-hye, an analyst at Shinyoung Securities, said. "The company was able to improve its product mix with high value-added products."

However, analysts predicted lukewarm third-quarter performance for SK hynix since DRAM chip prices could fall as server companies started to control inventory levels.

The spot price of 8-gigabit DDR4 DRAM reached $2.80 as of Monday, which was down from the April peak of $3.60, according to data from DRAMeXchange.

A spot price is the price quoted in the market, while contract prices are negotiated as monthly or quarterly deals. Changes in spot prices usually affect contract prices. Generally, 90 percent of DRAM chips are traded on contract quotes.

"We expect oversupply of server DRAM chips in the second half," Lee Su-bin, an analyst at Daishin Securities, said. "Server chip prices could drop 4 percent quarter-on-quarter in the third quarter and 8 percent in the fourth quarter."

Analysts said SK hynix will try to increase its mobile DRAM sales in the second half, hoping the global smartphone market will recover from the COVID-19 pandemic.

With major economies lifting virus lockdowns, major smartphone makers like Samsung Electronics Co. and Apple Inc. will introduce their new products such as the Galaxy Note 20 and the iPhone 12 in the second half of the year.

Analysts expected that the launch of new gaming consoles, such as the Xbox Series X from Microsoft Corp. and the PlayStation 5 from Sony Corp., could also boost memory chip demand in the second half.

"It is expected that demand for mobile chip products can offset slowdown in server chip demand," Doh Hyun-woo, an analyst at NH Investment & Securities, said. "The launch of the PlayStation 5 will especially boost demand for NAND flash."

SK hynix was the world's No. 2 DRAM chip producer and fifth-largest NAND flash maker as of this first quarter, according to DRAMeXchange. (Yonhap)