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Hynix Posts First-Quarter Profit Below Forecasts on Price Drops

South Korea's Hynix Semiconductor on Thursday said first-quarter net profit jumped 45%, but the result was well below expectations as prices of its memory chips plunged.

Hynix said average prices of its mainstay dynamic random access memory (DRAM) chips dropped 27% in the quarter, although shipments grew by 45%.

Meanwhile, prices of flash prices slid an even steeper 44%, with no shipment growth.

Analysts say DRAM prices should hit a bottom sometime in May, leading to poor profit figures for chipmakers in the second quarter.

But looking further ahead, the market should recover somewhat in the second half on the back of a cyclical upturn in demand for DRAM and NAND flash chips alike.

Hynix Semiconductor, which competes with bigger rival Samsung Electronics in the memory chip market, reported a 418 billion won (US$451.1 million) net profit in the quarter to March 31, well below a 560.3 billion won consensus forecast by 17 analysts polled by Reuters
Estimates.

The figure compared with 1.02 trillion won in the fourth quarter and 289.4 billion in the year-ago period.

Shares in Hynix, with a market capitalization of around 14.8 trillion won, were flat at 32,200 won in the morning session. Hynix shares fell 11% in the first quarter, trailing the Kospi Index's 1.3% rise, mainly on fears about weak results in the first half of 2007.

For 2007, Hynix is expected to post a net profit of 1.89 trillion won according to Reuters Estimates, from 2.01 trillion in 2006.

Sales in the first quarter were 2.42 trillion won, against expectations of 2.36 trillion won and last year's 1.51 trillion. Operating profit came in at 388 billion won, much less than the 589 billion expected.

Stronger-than-expected demand for DRAM chips last year prompted manufacturers to switch more capacity to DRAM from NAND flash, leading to oversupply, while demand linked to Microsoft's new Vista operating system remained sluggish.

Bigger rival Samsung saw its own first-quarter earnings hurt by DRAM's price collapse, with margins falling from 31 percent in the fourth quarter to a paltry 12 in the first.

Shortly before Thursday's results announcement Hynix said it would invest a total of 4.6 trillion won to build a new plant and expand its existing production lines.