[Click eStock] SK Hynix 3Q Operating Profit Expected at 1.1 Trillion KRW... 41% Decrease QoQ

Server and Mobile DRAM Demand Both Fall Short of Expectations... Intensified Competition in NAND Market Too

[Asia Economy Reporter Minwoo Lee] SK Hynix's third-quarter earnings are expected to decline sharply compared to the previous quarter. This is due to customers reducing server investments amid the COVID-19 pandemic and smartphone shipment expectations falling short of forecasts.

On the 18th, Daishin Securities projected SK Hynix to record sales of 7.704 trillion KRW and operating profit of 1.144 trillion KRW in the third quarter of this year. This represents a 10.5% decrease in sales and a 41.2% decrease in operating profit compared to the previous quarter. The estimates were revised downward by approximately 4.6% for sales and 12.3% for operating profit from the prior forecast of 8.079 trillion KRW in sales and 1.038 trillion KRW in operating profit.

The primary reason cited is the decline in demand in the DRAM sector. Server DRAM prices in the third quarter are expected to fall by 10% compared to the previous quarter. This is because the average DRAM inventory of cloud customers rose from 4-5 weeks in May to 7-8 weeks in August. Soo-bin Lee, a researcher at Daishin Securities, stated, "The inventory of a specific cloud server customer increased from 6 weeks to 13 weeks during the same period," adding, "Due to reduced server investments by companies amid COVID-19, shipments in the third quarter are expected to decline for major enterprise server suppliers such as Dell (market share 14%), HPE (market share 12%), and Huawei (market share 7%)."

Mobile DRAM prices are also expected to drop by about 5-6% compared to the previous quarter. The depletion of mobile DRAM inventory is slower than expected, and smartphone shipment expectations are also below forecasts.

The NAND flash market is not safe either. Although demand remains solid, competition is intensifying. In the second quarter, NAND market shares were Samsung Electronics 34% (1Q 36%), Kioxia 18% (1Q 18%), WDC 14% (1Q 13%), SK Hynix 12% (1Q 12%), Micron 11% (1Q 13%), and Intel 10% (1Q 8%), with the gaps narrowing. Lee said, "New capacity expansions by competitors in the first half will begin full-scale shipments in the second half, increasing supply," and "therefore, further price declines in NAND are expected."

Nevertheless, Daishin Securities maintained a 'Buy' investment rating on SK Hynix with a target price of 115,000 KRW. The previous trading day's closing price was 82,000 KRW. Lee explained, "From the fourth quarter, DRAM inventory of cloud customers is expected to decrease, and supply-demand conditions will gradually ease due to delays in capacity expansions by DRAM suppliers, so we maintain this opinion."

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