SK Hynix says chip prices to correct after lockdown stockpiling, recover in 2021

SEOUL (Reuters) - SK Hynix, the world’s No.2 memory chip maker, warned chip prices would correct in the second half of 2020 as a spike in demand amid coronavirus-related lockdowns wanes, but added that a recovery should follow as soon as next year.

FILE PHOTO: The logo of SK Hynix is seen at its headquarters in Seongnam, South Korea, April 25, 2016. REUTERS/Kim Hong-Ji/File Photo

The COVID-19 pandemic and U.S.-China tensions are muddying the outlook, but demand for chips used in 5G smartphones and game consoles should improve as major markets reopen, the South Korean chipmaker, which counts Apple Inc and Huawei among its customers, said on Thursday.

“The memory market environment remained favourable in the first half due to growing anxiety about IT supply chain in general,” CFO Cha Jin-seok said, after the company turned in a better-than-expected operating profit for the second quarter.

“Demand visibility is limited for the second half.”

DRAM chip prices are expected to bottom out in the second half while the chip market will recover next year, driven by increased server investments and a double-digit percent rise in smartphone shipments, Hynix said.

The company expects capital expenses to increase slightly in 2021 from this year’s conservative level.

Hynix said it was also looking to flexibly manage supplies given the latest U.S. move against Huawei.

U.S. Secretary of State Mike Pompeo has said America would impose visa restrictions on Chinese firms like Huawei that he accused of facilitating human-rights violations. Huawei has rejected these comments.

Rising U.S.-China tensions could hurt demand for mobile phones from the likes of Huawei and Apple and for components such as Hynix chips that are used in the devices.

In April-June, Hynix’s operating profit tripled to 1.9 trillion won ($1.59 billion) from a year earlier, while revenue rose 33% to 8.6 trillion won.

“Customers bought up as much inventory as possible as they weren’t sure what component prices would be like because of COVID-19,” said Kim Yang-jae, an analyst at KTB Investment.

Bigger rival Samsung Electronics has flagged a 23% rise in second-quarter operating profit, while peer Micron said current-quarter revenue would beat estimates.

SK Hynix shares fell 1%, while the wider market was down 1.1%.

($1 = 1,196.8500 won)

Reporting by Joyce Lee and Hyunjoo Jin; Additional reporting by Heekyong Yang; Editing by Stephen Coates and Himani Sarkar