DRAM chips have been the growth engine for SK Hynix for the 1st quarter of 2018

SK Hynix, the world’s second biggest memory chip producer, will boost NAND memory chip production by more than 30% in the second half of this year. NAND memory chips are easier to assemble than DRAM chips.

On Thursday, South Korean chipmaker SK Hynix Inc posted a record second quarter profit which underpins a continuation in the global demand for DRAM chips for cloud computing for the rest of the year, dismissing investor worries that the flash memory market is likely to weaken in the coming months.

SK Hynix Inc, the world’s second biggest producer of memory chips, said American and Chinese internet data centers are driving the demand for DRAM and it expects such demands to continue and support its earnings forecast, despite a broader slowdown in the chip industry.

“DRAM supply in the second half will not be enough to ease the supply shortage,” said Myoung Young Lee, SK Hynix’s executive vice president, during an earnings conference call. “Despite suppliers’ continued attempts to increase wafer capacity, production is not increasing fast enough due to growing complexity in tech migration.”

In its first quarter results, its operating profit grew by 83% to $5 billion (5.6 trillion won) from 3.1 trillion won a year earlier. It also reported a rise in revenues by 55% from a year earlier to a record 10.4 trillion won.

Incidentally, its DRAM business contributes 80% of the company’s sales during the 1st quarter, while sales from NAND chips accounted for only 18%.

With the news reaching the market, SK Hynix’s shares rose by 2.4% after having slid by 7% since Monday, on account of analysts’ forecasts of a slowdown in the DRAM sector.

The performance of the sales of its DRAM chips should be seen in the wider context of 3D NAND chips, which are cheaper to assemble than legacy 2D chips. However, since the output of 3D NAND chips have outpaced demand, this has led to fears that the so-called super-cycle of disciplined production and soaring demand is coming to an end.

NAND flash memory chips are used in long term data storage and are typically found in mobile devices including USB flash drives, solid state drives and memory cards. DRAM chips are used in servers, cryptocurrency devices process masses of streaming data and gaming PCs.

The new NAND technology is likely to apply downward pressure on prices in the third and fourth quarter of this year, said analysts while adding, this should however not be a cause of concern since it is not likely to hurt SK Hynix’s earnings too much.

“With NAND prices falling having little impact on its balance sheet, Hynix’s performance will be solid next year,” said Eo Kyu-jin, a senior analyst at Ebest Investment Securities.

SK Hynix stated, it will be boosting the production of NAND chips by more than 30% in the 3rd quarter of this year, a move that is in line with expectations, said analysts.

In the 3rd and the 4th quarter of this year, DRAM shipments are likely to see high single digit percentage growth.

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