[Click eStock] "SK Hynix, Despite a Gloomy Second Half, Opportunities Will Come by Year-End"

Concerns Over Slowed H2 Sales Due to Client's Excess DRAM Inventory
Price Normalization Expected Around Year-End... Rising Hopes for Rebound

[Asia Economy Reporter Minwoo Lee] SK Hynix is expected to post somewhat sluggish results in the second half of this year. This is interpreted as the impact of customers excessively accumulating inventory in the first half due to concerns about the novel coronavirus infection (COVID-19), which will appear in the second half. However, it is anticipated that as this inventory normalizes around the end of the year, DRAM prices will gradually rebound.

On the 13th, Kiwoom Securities forecast that SK Hynix's operating profit will reach 1.386 trillion KRW in the third quarter and 918 billion KRW in the fourth quarter of this year. This represents a decrease of 29% and 34%, respectively, compared to the previous quarter. Although PC demand is expected to exceed forecasts, weak demand for memory semiconductors centered on servers and mobile devices is judged to lead to an overall slowdown in performance. In the case of DRAM, shipments and prices are expected to decline simultaneously due to inventory adjustments by cloud customers. NAND flash is expected to see price declines mostly offset by increased shipment volumes. However, the transition to finer DRAM processes and an increase in NAND layers are expected to bring cost improvement effects.

This analysis suggests that the concerns are materializing. Kiwoom Securities analyst Park Yoo-ak stated, "Inventory burdens of North American cloud customers are leading to sluggish shipments by DRAM suppliers," adding, "Moreover, competitive price cuts among DRAM companies to secure volumes in the third quarter of this year are accelerating the industry's overall downward trend."

However, it is also anticipated that the timing of this trend's change is approaching. Attention should be paid to the fact that the speed of worsening market conditions, such as price declines, has begun to exceed expectations and is starting to affect DRAM companies' capital expenditure (CAPEX) plans for the second half of the year.

Analyst Park said, "This change will provide suppliers with a strategic option to accumulate inventory temporarily to defend the market and will be a factor that allows them to gain an advantage in price negotiations after distribution inventory normalizes," adding, "When cloud customers' DRAM inventory normalizes around the end of this year, DRAM prices will attempt to defend against declines or rebound from the end of the year onward." He continued, "Especially if Intel launches new server CPUs at the end of the year, expectations for expanded server investments by cloud customers will increase," and added, "Smartphone companies, aiming to make up for this year's sluggishness, are likely preparing to competitively launch products."

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