April 22, 2020 / 11:55 PM / a month ago

SK Hynix warns of volatile chip demand after first-quarter profit beats forecast

SEOUL (Reuters) - SK Hynix (000660.KS) warned on Thursday that demand for chips will remain volatile, while restrictions on global movement, if prolonged, could disrupt production, sales and product development across the industry.

FILE PHOTO: Employee walks past the logo of SK Hynix at its headquarters in Seongnam, South Korea, April 25, 2016. REUTERS/Kim Hong-Ji/File Photo

The South Korean chipmaker, which counts Apple Inc (AAPL.O) among its customers, posted a 41% drop in quarterly profit, but beat estimates by a large margin as server demand due to the coronavirus-driven shift to working from home partly offset weak smartphone business.

SK Hynix reported an operating profit of 800 billion won ($649 million) in the January to March period, higher than a Refinitiv SmartEstimate of 474 billion won, but still well below an operating profit of 1.4 trillion won a year earlier.

“There are a lot of uncertainties about the outlook for supply and prices for servers in the second half,” Cha Jin-seok, SK Hynix’s chief financial officer, told a conference call.

While the global smartphone market is expected to post a sharper decline this year than last year, the chipmaker said it is positive about demand for servers and PCs as more people are at home, boosting demand for online education, video streaming and e-commerce.

“The biggest factor to our demand forecast is the stablisation of COVID-19 and the recovery timing of global economic activity. If the economic recession is prolonged, we can’t rule out that even memory demand for servers could slow down,” Cha said.

SK Hynix shares dipped 0.95%, lagging a 0.76% rise in the wider market .KS11.

CURRENCY TAILWIND

SK Hynix said shipments of DRAM chips, used in smartphones, PCs and servers, to remain flat in the current quarter from the previous quarter.

“Its forecast is lower than the market expected, and SK Hynix will see a bigger impact from coronavirus impact on mobile phones, despite robust server demand,” Park Sung-soon, an analyst at Cape Investment & Securities, said.

Overseas peers, which have recently reported strong first-quarter earnings, have also sounded a cautious note about the current outlook.

Texas Instruments Inc (TXN.O) forecast current-quarter earnings largely below Wall Street estimates on Tuesday, while Taiwan Semiconductor Manufacturing Co Ltd (TSMC) (2330.TW) trimmed its full-year revenue outlook.

SK Hynix said its first-quarter revenue rose 6% to 7.2 trillion won.

A weaker South Korean currency, which fell to its lowest level since 2009 in mid-March, provided a tailwind for South Korean exporters like Samsung and SK Hynix by boosting the value of overseas revenue when repatriated.

SK Hynix’s bigger rival, Samsung Electronics (005930.KS), also earlier this month flagged forecast-beating operating profit for the January to March quarter.

Reporting by Hyunjoo Jin and Heekyong Yang; Additional reporting by Joyce Lee and Joori Roh; editing by Richard Pullin

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