UPDATE 2-SK Hynix sees brighter outlook for memory chips as China plant recovers

Mon Jan 27, 2014 10:13pm EST

* Q4 operating profit 785 bln won vs 780 bln won forecast

* Forecasts Q1 DRAM shipments up 20 pct q/q

* Shares up 2.1 pct vs 0.2 pct rise in KOSPI

SEOUL, Jan 28 (Reuters) - South Korea's SK Hynix Inc , the world's second-largest memory chipmaker, is upbeat for sales in 2014 as its fire-hit factory in China resumes full production this quarter and boosts shipments of personal computer chips.

Dynamic random access memory (DRAM) shipments will rise around 20 percent in the first quarter as the Wuxi plant returns to pre-fire production levels following the blaze in September which hit global supply of memory chips, the company said.

The plant made 15 percent of global DRAM semiconductors before the fire and Hynix is hoping its recovery will help cushion the impact of weakening chip prices and win back market share from rivals like South Korea's Samsung Electronics Co Ltd , Japan's Toshiba Corp and U.S.-based Micron Technology Inc.

Many of Hynix's clients - which include PC makers Apple Inc and Hewlett-Packard Co - are still short of memory chips after the fire forced the company to sharply cut shipments in the fourth quarter, ending two consecutive quarters of record earnings.

"As operation of our Wuxi plant is normalised and will be restored to pre-fire levels this quarter, we expect our DRAM shipments would increase by around 20 percent in the first quarter," Kim Joon-ho, SK Hynix head of business strategy, told analysts.

Looking ahead to the remainder of the year, he said chip sales for PC and server products should continue to increase as clients tried to build up inventory to make up for the generally low levels following tight supply in the previous quarter.

Hynix reported 785 billion won ($724 million) in October-December operating profit, broadly in line with analysts' consensus forecast of 780 billion expected by Thomson Reuters I/B/E/S.

The result compares with a 55 billion won profit a year ago and a record 1.16 trillion won profit in the previous quarter.

DRAM chip shipments fell 13 percent in the fourth quarter from the previous quarter due to reduced output from the China plant, outweighing a 1 percent increase in prices sparked by concerns over tight supply.

Shares of Hynix traded up 2.1 percent versus a 0.2 percent rise in the benchmark index. The stock has gained 8 percent over the past three months, beating a 5 percent drop in the wider market.

TOUGH TIMES

Chipmakers like Hynix are battling to maintain earnings growth as the PC industry shrinks and the booming mobile devices market slows.

Apple missed Wall Street's target for iPhone sales over the crucial holiday shopping season and offered a weaker-than-expected forecast for this quarter, underscoring challenges smartphone makers are facing as a result of high-end market saturation in many advanced economies.

Kim warned that demand growth from mobile devices would ease, largely due to slowing growth of high-end products, but he expected the PC sales slump to moderate thanks to a recovery in corporate demand.

Worldwide PC shipments fell 10 percent last year after declining seven consecutive quarters, as smartphones and tablets captured consumers' attention, according to researcher IDC.

Contract prices of DRAM chips, widely used in computers, dropped 3 percent in the first half of January, according to price tracker DRAMeXchange.com.

"DRAM prices are holding up relatively well in the current quarter and the market is now even forecasting that the overall DRAM industry would fare better than many had expected," Park Nae-hak, vice president and head of DRAM marketing told analysts.

Park said that until late last year the global DRAM market was expected to contract to $33 billion in 2014 from last year's $35 billion, but now the market would now do better.

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