SK Hynix Profit Misses Estimates, Dividend Plan Lifts Shares

(Bloomberg) -- SK Hynix Inc. announced a 50 percent increase in dividends along with plans to cut investment if necessary, helping to bolster its stock even after reporting lower-than-projected sales and profit.

Weaker demand for memory chips resulted in operating income of 4.4 trillion won ($3.9 billion) in the three months ended December, short of the 5.1 trillion-won average of analysts’ estimates compiled by Bloomberg. Sales also fell short of expectations. The increase in the annual dividend to 1,500 won from 1,000 won helped fuel a gain of as much as 3.7 percent in the shares.

While the results reflect sluggish demand for mobile-phone chips and the implications of the U.S.-China trade war, the Icheon, South Korea-based manufacturer expressed hope for improvement in the second half of this year when server companies go ahead with further expansion. The supplier to Apple Inc. also said its capital expenditures will decline this year and that the company may consider an additional cut depending on demand.

“Hynix made it clear it will not produce more than it sells,” said Claire Kim, an analyst at Hana Financial Investment. “The best way to improve earnings as the market outlook improves is to control supplies, and Hynix today said something everyone wanted to hear.”

Hynix added in its conference call that fewer shipments of smartphones appear to be “inevitable” this year. Apple cut its sales forecast earlier this month and data centers are readjusting their expansion plans amid continued trade frictions between the U.S. and China. Hynix sales rely heavily on the world’s two largest economies.

“As memory demand slowed down in the second half and the supply shortage was resolved, the memory market environment rapidly changed,” Hynix said in a statement, adding that it plans to “concentrate on high value-added products and technologies in order to prepare for the rapidly changing market conditions.”

The shares of Hynix rose to 69,300 won in early trading in Seoul. The stock fell 21 percent in 2018. Sales for the quarter were 9.9 trillion won, compared with estimates for 10.3 trillion won. Net income fell 28 percent quarter-on-quarter to 3.4 trillion won. Still, for the full year, Hynix reported record profits and sales.

Contract prices for 32-gigabyte DRAM server modules fell 9.6 percent in the December quarter, according to InSpectrum Tech Inc. Prices for 128 gigabit MLC NAND flash memory chips fell 8.4 percent. Server DRAM prices may fall by more than 20 percent quarter-on-quarter in the first three months of this year, according to TrendForce.

“The speed and extent of the fall will likely get bigger,” Kim Sun-woo and Kim Joon-sung, analysts at Meritz Securities, wrote in a Jan. 14 report. “It seems the market situation around DRAM and NAND has recently entered a worse phase more rapidly.”

Earlier this month, larger rival Samsung Electronics Co. released preliminary earnings that missed estimates in the same quarter. The world’s largest chipmaker plans to explain its results to investors at the end of this month.

SK Hynix Profit Misses Estimates, Dividend Plan Lifts Shares

Apple is Hynix’s largest customer, providing about 13 percent of its sales, according to data compiled by Bloomberg. Intel Corp. and Samsung also receive supplies from Hynix, which seeks to become the leader in the fast-growing NAND flash memory market after joining a Bain-led group chosen to take over Toshiba Corp.’s chip-making unit.

©2019 Bloomberg L.P.