Strong chip prices offset SK Hynix output after factory blaze

Factory blaze drives up prices for South Korean group’s chips

SK Hynix, the world’s second-largest memory chipmaker by sales, has reported record operating profit for the second consecutive quarter, as higher chip prices offset reduced output at its Chinese plant.

The South Korean company expects D-Ram chip prices to remain strong amid the industry’s constrained production, which has been exacerbated by last month’s fire at its factory in Wuxi.

Hynix, whose technology is found in gadgets made by Apple and Sony, on Tuesday reported that its average selling prices of D-Ram chips rose 5 per cent in the third quarter due to tighter supply.

The company swung to a Won1.16tn ($1.1bn) operating profit in the three months from July to September, compared with an operating loss of Won24bn in the same period a year ago. Operating margins for the quarter rose from a contraction of 1 per cent to growth of 29 per cent year-on-year.

The group’s net profit jumped from Won2bn to Won958bn, while sales rose 68.5 per cent to Won4.08tn.

However, the company’s earnings missed analyst estimates as D-Ram shipments fell 2 per cent from the second quarter, due to the fire in China. Analysts’ consensus forecasts were for a Won988bn net profit.

Furthermore, analysts expect that the chipmaker’s earnings growth will fall back in the final quarter of 2013, when the group is likely to feel the full impact of the Chinese fire.

Operations at the group’s Wuxi plant, which produced about 15 per cent of global computer memory chips before the fire, partially resumed on October 13 and the company is targeting a full recovery next month.

But Hynix executives also cautioned on Tuesday that the plan could be delayed by a month, depending on the supply of production equipment. The fire has cost Hynix roughly Won200bn of non-operating expenses.

Kim Young-woo, analyst at HMC Investment Securities, expects Hynix’s operating profit to fall to Won750bn-Won800bn in the quarter to year-end. But the fire gave an added boost to chip prices, which rose to the highest level in more than two years.

Hynix said its capacity for Nand flash memory chips used in smartphones and tablets would fall 25-30 per cent in the fourth quarter due to the Chinese fire.

Analysts said the semiconductor industry was seeing a structural recovery amid tighter supply, following consolidation. Hynix is one of three surviving major players in the D-Ram market, after the elimination of several weaker competitors from the market.

“Chip prices are likely to remain strong in the coming quarters as supply is likely to remain tight with the industry’s game of chicken over now, while demand for higher-density memory chips used in smartphones is likely to increase,” said Mr Kim.

The strong price recovery helped Hynix’s bigger rival Samsung Electronics post a 12 per cent increase in third-quarter revenue from its semiconductor division while its operating profit from the division more than doubled to Won2.1tn.

Shares of Hynix – up more than 35 per cent over the past 12 months – on Tuesday morning were up 1.5 per cent at Won 33,100.

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