SK Hynix sees strong demand for server chips offset weaker mobile and PC demand By Reuters


© Reuters. FILE PHOTO: A view of the logo of SK Hynix at its headquarters in Seongnam, South Korea April 25, 2016. REUTERS/Kim Hong-Ji

By Joyce Lee

SEOUL (Reuters) – South Korean chipmaker SK Hynix Inc said it expects strong demand for server chips to offset weaker growth in personal computers and mobile phones, after its profit of the first quarter more than doubled compared to a year ago.

The world’s second-largest memory chipmaker reported a 116% jump in first-quarter profit on Wednesday, buoyed by strong demand from server customers, although it slightly beat market expectations mainly due to one-time quality control costs.

“Enterprise IT spending plans are solid and even increasing slightly despite the external uncertainties that emerged in the first quarter,” said Kevin Noh, Chief Marketing Officer of SK Hynix.

“And given last year’s postponement of data center construction due to COVID, we expect server chip demand to be strong in 2022,” he said.

China’s COVID-19 lockdown was the biggest risk to weakening demand for chips in mobile and personal computers, the company said, but it expects a recovery in the second half as manufacturers ramp up launches of products before the year-end shopping season.

Shares of SK Hynix have fallen around 15% since the start of the year, as have those of competitors such as Samsung Electronics (OTC:) and Micron Technology Inc (NASDAQ:), due to concerns about the effect from the COVID-19 lockdown in China and inflationary pressures on component shortages and consumer demand.

Shares of SK Hynix were trading down 2.7% on Wednesday in an overall market down 1.1%.

Global smartphone shipments fell 11% between January and March amid unfavorable economic conditions and sluggish seasonal demand, research firm Canalys said.


Chip equipment delivery delays caused by component shortages have hampered capacity expansions and upgrades in the chip manufacturing industry.

But SK Hynix, bringing equipment throughout the year, expects to be roughly in line with its original capacity growth target by the end of the year and will strive to meet customer demand by improving its rate of return, Noh said.

Operating profit hit 2.9 trillion won ($2.3 billion) in the January-March quarter, its highest first-quarter profit since 2018. It was an increase from 1.3 trillion won a year earlier, but below analysts’ expected profit of 3.1 trillion won, according to Refinitiv SmartEstimate.

Despite a slowdown in mobile demand, a disruption in February at a rival NAND flash chip factory owned by Japan’s Kioxia and western digital (NASDAQ:) due to raw material contamination led to strong shipments, analysts said.

SK Hynix said it has conservatively earmarked 380 billion won ($301 million) as a one-time cost to compensate customers for DRAM chips manufactured in mid-2020 that exhibited quality issues when used intensely for more than 20 years. ‘a year.

The company said it expects the memory chip industry to continue growing this year on server demand, as volatility and cyclicality in the memory chip industry appear to have eased.

Customers have learned to lock in volume at year-end and build safety stock during supply disruptions over the past two years, executives said on an earnings call. SK Hynix, meanwhile, has focused on profitability by making fewer products that are sensitive to customer business fluctuations, they added.

Revenue soared 43% year-on-year to 12.2 trillion won.

($1 = 1,261.0000 won)


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