SK Hynix Sounds Upbeat Note on Chip Demand After Tripling Profit

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Memory chip maker SK Hynix Inc.’s fourth-quarter earnings more than tripled after lockdowns and stay-at-home orders boosted demand for PCs and purchases from Chinese smartphone makers.

Hynix struck a more optimistic tone than rival Samsung Electronics Co., which warned a day earlier of weakness in the first quarter. The supplier of silicon to Apple Inc. said Friday that it expects the memory market to recover, but warned of uncertainty over disruptions to supply from the pandemic and tightening global chipmaking capacity.

“Demand this year is going to be much more positive than the supply side,” said MS Park, Hynix vice president for DRAM marketing. “Both the market and customers appear to be upwardly adjusting their outlook.”

Operating profit rose to 965.9 billion won ($860 million) in the three months ended December, beating the 928 billion won average of estimates compiled by Bloomberg. Revenue climbed about 15% to 7.97 trillion won. Shares rose in Seoul after the report.

While Hynix no longer supplies memory chips to Huawei Technologies Co. because of U.S. sanctions that took effect in September, Chinese smartphone makers including Oppo and Xiaomi Corp. are increasing orders. Apple’s earnings for the holiday quarter jumped more than analysts expected on sales of the iPhone 12, its first device for 5G wireless networks. Demand for servers and gaming consoles is also rising which is likely to continue this year.

What Bloomberg Intelligence Says:

“SK Hynix’s DRAM shipments in 2021 may grow in the high teens or as much as 20%, while NAND shipments this year could rise in the low 30s in percentage terms, as management expects.”

- Masahiro Wakasugi and Anthea Lai, analysts

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Hynix signaled there may be shortages in the memory chip market, as demand growth for DRAM is likely to exceed supply because of increasing use in data-center servers and 5G smartphones. The auto industry has been struggling with semiconductor shortages that have led to plant closures across the industry.

The company is expediting its two-year plan to relocate 8-inch foundry equipment from its M8 fab in Cheongju, South Korea, to its fab in Wuxi, China in order to cut costs and address booming demand.

Hynix also said that while its capital spending will increase compared to last year, the extent will be limited, despite opening its M16 fabrication facility. It is planning prudent spending given uncertainties in the market.

Bit growth, or the amount of memory produced, exceeded expectations in the fourth quarter thanks to stronger-than-expected demand, Hanwha Investment & Securities said in a research note. Inventories recovered to a normal level toward the end of the year, a positive sign for chipmakers, Hanwha said.

Hynix peers including Micron Technology Inc. and Advanced Micro Devices Inc. issued upbeat outlooks for the first quarter as demand is recovering for chips that go into PCs, automobiles and servers. Samsung said it expects the market for DRAM memory chips to rebound in the first half with solid sales for mobile and rebounding data-center demand.

DRAM prices are set to increase starting in the first quarter as rising orders from mobile-device makers bring inventories down, while producers tighten capacity, said Jaeyun Lee, an analyst at Yuanta Securities. “This means that the timing of rebound has been brought forward by 2-3 months,” Lee said.

©2021 Bloomberg L.P.

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