[Click eStock] "SK Hynix Smiles Until 2Q... Slows Down from Second Half"

Temporary Rise in Server and PC DRAM Prices Due to COVID-19
Companies' Efforts to Secure Inventory Lead to Strong Performance Until Q2
Firms with Excess Inventory Begin Demanding Price Cuts
Product Demand Declines, Sales Drop Inevitable in Q3 and Q4

[Asia Economy Reporter Minwoo Lee] Despite the economic slowdown caused by the novel coronavirus infection (COVID-19), the semiconductor industry, which performed well, is expected to slow down somewhat from the third quarter. It is analyzed that SK Hynix's earnings, which rebounded as the excessively rising prices of server and PC DRAM returned to their proper levels, may also falter.

On the 24th, Hyundai Motor Securities forecasted that SK Hynix would achieve sales of 8.361 trillion KRW and an operating profit of 1.748 trillion KRW in the second quarter of this year. Compared to the same period last year, sales increased by 29.6% and operating profit by 174%. Thanks to better-than-expected DRAM price increases and the weak Korean won, both sales and operating profit are expected to exceed market consensus by 5.5% and 39.1%, respectively. Researcher Noh Geun-chang of Hyundai Motor Securities analyzed, "The shipment volume of DRAM and NAND flash memory is expected to be similar to previous estimates, but the fixed prices of server and PC DRAM, which account for more than 55% of total DRAM sales, rose by 20% and 14% respectively compared to the previous quarter, driving profitability improvement."

If such price increases drove the strong performance, there is a forecast that in the third quarter, they could rather become a factor for performance decline. The memory price increase in the first half was mainly due to memory semiconductor inventory accumulation movements caused by concerns over factory shutdowns and increased server and PC production linked to untact demand. Researcher Noh said, "Even without COVID-19, product prices could have risen, but the economic recession caused by COVID-19 made this price increase a short-term rebound lasting six months. Above all, the fact that there was no production stoppage in memory semiconductor factories due to COVID-19, but only excessive memory inventory increase by cloud-related companies, will affect future sales."

In fact, server production in the second quarter increased by 20% compared to the previous quarter, but server demand only rose by 9%, significantly increasing inventory among cloud companies. Although smartphone demand recovery is expected from the third quarter due to economic reopening, concerns about future sales decline are rising as price reduction demands increase mainly from trading partners, emphasizing the abnormality of the server and PC DRAM price increases in the first half.

Hyundai Motor Securities expects server DRAM prices and NAND flash memory prices in the third and fourth quarters to fall by about 6-7% and 2-5%, respectively, compared to the previous quarter. Therefore, the operating profit forecasts for SK Hynix in the third and fourth quarters were lowered by 12.2% and 37.4% to 1.598 trillion KRW and 1.684 trillion KRW, respectively. The investment opinion 'Buy' and target stock price of 105,000 KRW were maintained. The closing price the previous day was 84,100 KRW. Researcher Noh predicted, "This DRAM price decline cycle will be a short-term adjustment cycle ending in the first quarter of 2021."

This content was produced with the assistance of AI translation services.