Hynix Second-Quarter Profit Beats Forecasts, Hurt by Price Fall

South Korea's Hynix Semiconductor posted a 35.5% drop in quarterly profit on Friday as memory chip prices plunged, but the result beat market forecasts and the company expects a recovery in the second half.

Encouraged by a strong market for dynamic random access memory (DRAM) chips last year, manufacturers kept churning out chips in vast quantities despite clear signs of oversupply. Hynix said average DRAM prices fell by 43% in the second quarter alone.

"We think the second quarter was the bottom and prices will turn up ... for both DRAM and NAND going into the second half and beyond," said O.C. Kwon, senior vice president of strategic planning at Hynix.

Some analysts expect DRAM prices to rise slightly in the third quarter.

Hynix, the world's No. 2 memory chip maker behind local rival Samsung Electronics, posted 209 billion won (US$227.7 million) in net profit in the quarter to June 30, well above a 29.2 billion won profit forecast by 10 analysts surveyed by Reuters.

Gains from foreign currency rate changes helped the net profit, Hynix said. The figure compared with 324 billion won earned a year ago and 418 billion in the first quarter.

The stock rose a mere 2.9% in the second quarter, trailing the KOSPI's 20% surge, mainly on fears about weak results from the DRAM free fall. But signs of a DRAM recovery has helped the stock gain 12% since July 3 and 22% since June 15.

Looking ahead, Hynix said it expected only a moderate DRAM supply growth due to an ongoing shift of capacity to NAND chips and the sector's migration into more advanced technologies. It also forecast healthy shipment growth for both DRAM and NAND chips in the third quarter.

Sales in the second quarter were 1.94 trillion won, against expectations of 1.97 trillion won and last year's 1.58 trillion. Operating profit came in at 42 billion won, also beating the 20.9 billion forecast.

Earnings of DRAM makers worldwide have been devastated by the price drops. Two weeks ago, top chip maker Samsung posted its worst quarterly profit in four years.

Germany's Qimonda, the world's No. 3 memory chip maker, posted a quarterly loss before tax twice as deep as expected, and Taiwan's top memory chip maker Powerchip swung to its first loss in more than three years.

Hynix is expected to post a full-year net profit of 1.05 trillion won, according to Reuters Estimates, half the 2.01 trillion won profit it posted for 2006.