Clouds on the chip horizon spell trouble for SK hynix

Solid results from SK hynix were overshadowed by a gloomy outlook for the chips the company makes.

Workers at SK hynix transport wafers at a chip plant in Icheon, Gyeonggi. [JOONGANG PHOTO]

Solid results from SK hynix were overshadowed by a gloomy outlook for the chips the company makes.

The world's No. 2 maker of memory chips warned that capital expenditures could be delayed next year as demand for some of its products weakens and inventories start piling up.

"We are in a situation where next year's investment in facilities must be adjusted to a significant degree," said SK hynix President Noh Jong-won on Wednesday.

The chipmaker said that its net profit came at 2.88 trillion won ($2.19 billion), up 45 percent on year, although the figure was short of FnGuide's market consensus of 2.93 trillion won.

Sales rose 34 percent to 13.81 trillion won in the April-June period, the highest in its corporate history, as an upturn in the prices of NAND flash chips, the depreciation of the won and improved production yields offset declining prices of dynamic random-access memory (DRAM) chips.

The sales figure was shy of the consensus of 14.44 trillion won.

Operating profit surged 56 percent to 4.19 trillion won in the second quarter on-year, beating the market estimate of 3.95 trillion won.

While the chipmaker highlighted a sound performance amid intensifying uncertainties and rising costs, it suggested trouble in the coming months as demand for PCs, smartphones and servers is expected to weaken.

"The second half will face a contraction in demand, which will lead to an adjustment of demand target for memory chips," Noh said.

He said that consumer purchasing power has been lowered by inflation, and that means weak PC and phone sales. Manufacturers like Samsung Electronics and LG Electronics are carrying historically-high inventory levels.

The corporate clients are also less likely to buy PCs and hold extra chips for servers.

"Its clients will take on a conservative approach in managing inventory in the second half," said Lee Min-hee, an analyst at BNK Securities. "In that case, chipmakers will be forced to lower the prices."

Eo Kyu-jin, an analyst at DB Financial Investment, predicted that such trend will continue to put a strain through early next year.

"With corporations pushing to constrain higher inventories, a reduction in quarterly earnings is inevitable," Eo said, "After the tight inventory control strategy, the memory chip business will rebound in the second quarter of next year."

Shares of the company fell 0.5 percent to 100,000 won on Wednesday, following the announcement.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]