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SK hynix reports earnings surprise amid high server demand

Chipmaker forecasts cuts in memory sales for smartphones, but strong demand for servers amid social distancing trend

SK hynix campus in Icheon, Gyeonggi Province (SK hynix)
SK hynix campus in Icheon, Gyeonggi Province (SK hynix)

SK hynix, the second-largest memory chipmaker in the world, announced an earnings surprise Thursday, with a 239 percent on-quarter increase in its operating profit in the first quarter.

Despite concerns about a coronavirus downturn in the global economy, the South Korean chipmaker posted 7.19 trillion won ($6.4 billion) in sales and 800.3 billion own in operating profit during the January to March period, according to its regulatory filing.

Its net profit stood at 649.1 billion won.

Compared to the final quarter of last year, the sales and operating profit jumped 4 percent and 239 percent, respectively.

However, the operating profit declined 41.4 percent on-year, despite a 6.3 percent increase in sales.

The better-than-expected performance was driven by increased sales of server products, better yield rates and cost reductions, the company said.

For DRAM, strong demand from server clients was reflected in the profit surge, offsetting the weak mobile demand which declined due to both seasonal slowdown and the COVID-19 impact.

As a result, the company’s DRAM bit shipments declined by 4 percent compared to the previous quarter, while DRAM average selling price rose by 3 percent for the past three months.

For NAND Flash, the favorable demand of server solid state drives led to 12 percent increase in bit shipments and 7 percent rise in the average selling price.

However, regarding future market conditions, SK hynix expressed concerns, calling the current situation “unprecedented.”

“It is expected that global smartphone sales will decline, but the demand for other IT products and services based on social distancing trend will drive the growth of server memory demand in mid- to long-term,” the company said.

“Nevertheless, if the COVID-19 pandemic prolongs, it will lead to increased demand volatility in the global market and might disrupt production activities.”

As SK hynix showed, the decline in unit shipments of integrated circuits could continue throughout the year, according to a report by IC Insights.

The report said the global unit shipments of semiconductors is forecast to fall 3 percent in 2020 compared to last year.

If that plays out, it will be the first time that global chip shipments decrease for two years in a row.

Last year, total shipments dropped 6 percent compared to 2018.

By Song Su-hyun (