SK Hynix Hastens Capital Spending as Profit Tops Estimates

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Chipmaker SK Hynix Inc. reported better-than-expected profit for the first quarter after strong demand from PC and smartphone makers and said it will increase capital expenditure in the latter half of this year to respond to anticipated 2022 demand.

The supplier of memory chips to Apple Inc. said Wednesday operating profit rose to 1.32 trillion won ($1.2 billion) in the three months ended March, beating the 1.29 trillion won average of estimates compiled by Bloomberg. Sales increased about 18% to 8.49 trillion won.

Hynix is signaling that the surge in demand for semiconductors for consumer electronics, autos and technology gear shows no sign of abating. The company is moving some of its 2022 capital expenditure into this year in order to secure chipmaking equipment with long lead times, it said. It’s also “optimistic” about the market outlook for the year ahead and sees demand for both DRAM and NAND memory products continuing to grow. It “expects the inventory of customers to decrease quickly,” according to its statement.

Shares were down as much as 3.7% in Seoul on Wednesday. Hynix’s quarterly results failed to meet lofty expectations and justify the stock’s high valuation, according to Seo Sang-yeong, a strategist at Mirae Asset Securities. Semiconductor stocks in general are taking a hit from investors looking to reduce exposure and add more non-cyclical names such as shipbuilders and financial stocks, said Song Myung-sup of HI Investment & Securities.

Memory rival Micron Technology Inc. said earlier this month that prices of dynamic memory (DRAM) are rising rapidly amid “severe undersupply.” Dynamic memory accounts for more than 70% of Hynix sales. Taipei-based Trendforce is among a slew of analyst firms upgrading their price targets, revising its second-quarter DRAM price increase forecast to 18-23% from 13-18% on a quarterly basis.

IT and server suppliers are also adding to their inventories in anticipation of an industrial shift to next-generation memory modules that will raise prices but also constrain production capacity in the short term.

Intel Corp. reported strong PC sales last week and said there’s no sign of a slowdown in demand for that segment. The data center business is also set for massive growth, according to Hynix Chief Executive Officer Lee Seok-hee, who expects the number of hyperscale data centers to double by 2025.

Hynix is expanding its non-volatile NAND memory business with the $9 billion acquisition of Intel’s NAND division. Prices for such storage are now expected to rebound in the second quarter, a quarter quicker than previously anticipated, according to Claire Kim, an analyst at Hana Financial Investment.

©2021 Bloomberg L.P.

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