SK Hynix Q1 profit beats estimates thanks to robust server demand

SEOUL — SK Hynix delivered a resilient performance in the first quarter despite the coronavirus pandemic as robust demand for server memory chips helped offset declining demand for smartphones.

The world’s second-largest memory chipmaker said that its operating profit fell 41% to 800 billion won ($650 million) in the January-March period from a year ago, while revenue rose 6% to 7.2 trillion won.

But quarter-on-quarter its operating profit jumped 239% and revenue increased 4%, rebounding from a weak performance in the fourth quarter. The company attributed this to increased sales of server products, improvement in yield rates and cost reduction.

“For DRAM, strong demand of server clients offset the weak mobile demand which declined due to both seasonal slowdown and the COVID-19 impact,” SK Hynix said in a statement. “[We] will minimize potential risks caused by COVID-19, and set up future technology innovation and infrastructure to react in a timely way to 5G and server-based growth momentum,” said Cha Jin-Seok, chief financial officer at the company.

The better-than-expected earnings came two weeks after its bigger rival Samsung Electronics posted resilient earnings guidance for similar reasons. Samsung’s operating profit rose 2.7% to 6.4 trillion won in the first quarter from the previous year, with its sales increasing 5% to 55 trillion won.

SK Hynix said it expects global smartphone sales will decline, but that demand for IT products and services due to “social distancing” will drive the growth of server memory demand in the mid- to long-term.

“We expect strong growth for cloud service providers and e-commerce companies,” said Cha in a conference call. “In particular e-commerce and social platform players in China may expand their business on the back of the government’s support.”

However, the company said that if the COVID-19 pandemic lingers, it will lead to increased demand volatility in the global market and might disrupt production activities.

Last week, Taiwan Semiconductor Manufacturing Co. forecast that the global semiconductor and smartphone markets were both at risk of contracting this year due to the coronavirus. TSMC, the world’s biggest contract chipmaker, said it had significantly lowered its 2020 forecast for the semiconductor market, excluding memory, to zero growth or even a slight decline, compared with the 8% expansion it predicted in January.

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