SK Hynix's chip sales slow, posts dip in Q2 profit

A view of the main gate of the Hynix semiconductor plant in Icheon, South Korea.
Chung Sung-Jun | Getty Images

SK Hynix, the world's second-biggest memory chipmaker, on Thursday said shipment growth would slow in the third quarter as it posted its first drop in quarterly profit in two years, casting doubt on medium-term revenue growth.

A change in product mix and a transition to more complex production technology will crimp third-quarter shipments growth for the key DRAM business, SK Hynix President Kim Joon-ho told analysts during a conference call.

The warning took the gloss off an otherwise upbeat outlook for the South Korean chipmaker and sent its shares 3.3 percent lower as of 0415 GMT.

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"There are worries that DRAM shipments growth will be increasingly limited in the latter half of the year, given the technology migration issues, which would lead to slower top-line growth," LIG Investment & Securities analyst Ryan Hong said.

But Hong said such concerns were overblown, as limited shipments growth would help keep supply tight and support chip prices.

SK Hynix, which competes with market leader Samsung Electronics, Japan's Toshiba and U.S.-based Micron Technology, posted operating profit of 1.1 trillion won ($1.07 billion) for the April-June period.

The result was 2.7 percent below the same quarter a year earlier and matched the mean forecast from 34 analysts polled by Thomson Reuters I/B/E/S.

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The won's rapid gains in the second quarter took a toll on revenue, which fell 0.2 percent compared with the previous corresponding period. The currency on average gained more than 9 percent against the dollar during the April-June quarter from a year ago.

President Kim said growth in shipments of DRAM chips, mainly used in personal computers and servers, would slow to a mid-single-digit percent rate in the third quarter, from 13 percent in the April-June period. Shipments of NAND chips, typically used in mobile devices, would slow to a high 20 percent rate from 54 percent.

Even so, SK Hynix tipped firm market conditions amid a seasonal pickup in demand for consumer electronics products as well as cautious capacity management among chipmakers.

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"DRAM market trends will remain favorable due to better-than-expected demand for personal computers as well as data center-related server demand," Kim said.

"The launch of new mobile products by major companies and the development of LTE-related demand in China will likely keep demand-side conditions firm," he added, referring to China's next-generation mobile network.

Memory market boom

Analysts played down concerns of a supply glut arising from the company's plans for capital investment in the second half of 2015, and expected short-term earnings to remain firm.

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A Thomson I/B/E/S poll of analysts tips the firm to set a new record profit during the July-September period, helped by a softer won which has fallen more than 1 percent so far in the quarter.

"We expect SK Hynix to continue to report good earnings in the third and fourth quarters due to steady demand, for example from Apple," Shinhan Investment analyst Kim Young-chan said.

"The company's revenues could become affected by the strong won, but since more than 60 percent of SK Hynix's raw materials are imported, the effect is diluted."

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DRAM contract prices held steady in the second half of June as supply remained tight for personal computers, according to DRAMeXchange. The price tracker forecast a pick-up in contract prices in July and August as a result.

Micron told Reuters in June that its customers were focused on ensuring the chipmaker maintained DRAM capacity, adding to expectations for firm demand going forward.

The release of new smartphones, including the larger-screen iPhone from major SK Hynix client Apple, are expected to further boost DRAM and NAND chip sales.

"The current memory market boom is taking place because limited supply is driving up prices and overall profitability," LIG's Hong said.