SK Hynix fuels hopes for chip recovery as third-quarter profit beats

SEOUL (Reuters) - The world's second-largest memory chipmaker, SK Hynix Inc 000660.KS, said 5G-enabled smartphones should help lift the global memory market out of the doldrums next year, as its third-quarter profit beat market expectations on Thursday.

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

The South Korean rival to Samsung Electronics Co Ltd 005930.KS cautioned however that it would cut investment "considerably" in 2020 due to uncertainties over memory-chip demand and global trade tensions.

Chipmakers have sent mixed signals about the demand outlook, with Taiwan's TSMC 2330.TW offering record investment plans for 2019 and 2020 on strong 5G smartphone sales, while Texas Instruments Inc TXN.O gave a disappointing revenue forecast citing the U.S.-China trade war.

“We expect favourable conditions for prices to continue for some time,” SK Hynix Vice President Cha Jin-seok told an earnings call.

Sean Kim, head of DRAM Marketing at SK Hynix, said the Chinese market in particular would get a boost from subsidies and production of mid-to-low-end 5G phones equipped with integrated chips.

“We are looking at large-scale growth (in 5G smartphones) next year from this year. There could be more than 200 million 5G smartphone units sold next year, compared to less than tens of millions this year,” he told the call with analysts.

Data centre clients also were expected to increase purchases of DRAM chips, which help devices perform multiple tasks, the company said.

The chipmaker and major supplier to China’s Huawei Technologies reported a 93% on-year drop in July-September earnings as smartphone chip prices continued to decline, albeit at a slower pace.

Third-quarter operating profit was 473 billion won ($404.7 million), the lowest in three years but above a 418 billion Refinitiv SmartEstimate - which gives more weighting to recent estimates by analysts who are more consistently accurate.

The result compared with profit of 6.5 trillion won in the same period last year, amid a slump in the cyclical memory chip industry following a two-year boom.

While the U.S.-China trade war has impacted chipmakers globally, SK Hynix has been hit with the double-whammy of a U.S. blacklist on Huawei, the company’s major customer.

“We are mindful of external uncertainties persisting, so taking conservative stance on capital spending next year,” Vice President Cha said, without providing details on the scale of the investment reduction.

The company also said it was reviewing its dividend policy due to tighter cash flow.

Shares in SK Hynix were up 2.5% as of 0325 GMT, compared with the wider market's .KS11 0.2% fall.

South Korean exports, something of a bellwether for semiconductor sales, rose 4.1% in the third quarter after a 2.0% gain in the second.

Prices for DRAM chips, are forecast to fall by a low-single digit percentage in the first quarter of 2020, compared to the 20% to 25% drop in the same period this year, market tracker TrendForce said.

Reporting by Ju-min Park and Heekyong Yang; Editing by Christopher Cushing and Stephen Coates