Korean chips, display makers expect upturn in business in second half

SK hynix Inc. headquarters in Icheon. [Courtesy of SK hynix]

South Korean manufacturers of chips and displays, the country’s mainstay industries, are preparing for an upturn after the second half of this year as there is a clear trend of increased shipments since the second quarter on the back of inventory adjustments made by companies that make finished goods.

There are also growing expectations of increased demand for new information technology products centered around smartphones in the second half of this year, raising hopes for a turnaround for many companies in the fourth quarter.

SK hynix Inc., for example, which halved investment this year, hinted at the possibility of carrying out new investments particularly in high-priced premium products where demand has been growing rapidly.

SK hynix hinted at expanding investment in products with increasing demand such as high bandwidth memory (HBM) and double data rate 5 (DDR5) during a conference call after announcing its second-quarter results on Wednesday.

The Korean chipmaker plans to utilize funds secured through streamlining investments in other areas and enhancing management efficiency to expand HBM production capacity.

SK hynix also suggested a plan to increase the investment scale further next year to maintain technological competitiveness and respond to growing demand.

“The overall investment will be reduced by over 50 percent compared to the previous year as initially planned,” said Kim Woo-hyun, chief financial officer at SK hynix. “However, we will continue to invest in expanding the production capacity of large-capacity DDR5 and HBM3 that leads market growth, using the resources secured through operational efficiency.”

He noted that the current minimum investment scale will be insufficient to effectively respond to increasing demand and maintain technological competitiveness next year.

“We will prioritize investments for expanding HBM production, but instead of expanding facility investments, we will focus on process conversion,” Kim said.

The indication of SK hynix’s investment expansion next year is interpreted as a positive outlook for the second half of the year.

SK hynix expected shipments of large-capacity DDR5 modules and HBM products to more than double compared to the previous year, with growing demand led by generative artificial intelligence (AI) craze.

Revenue from graphic DRAM, including HBM, accounted for about 10 percent of the entire DRAM revenue in the fourth quarter of last year but it has reached 20 percent in the second quarter of this year.

SK hynix expected to witness a significant surge in demand in the second half, led by the launch of Apple’s iPhone 15 and other new mobile devices. Next year, there will be an increase in demand for PCs and smartphones after sluggish two years.

Server companies may experience a full-fledged recovery next year, considering their reduced purchases this year.

“DRAM, including AI-related DDR5 and HBM, has secured considerable demand, so we expect demand to increase to a level similar to that of the second quarter,” said Park Myung-soo, head of DRAM marketing at SK hynix.

NAND flash shipments also increased by about 50 percent in the second quarter compared to the first quarter due to a base effect. SK hynix announced an additional 5~10 percent reduction in NAND flash due to the high inventory level and unsatisfactory profitability.

[Courtesy of LG Display]

LG Display Co. also judges that the market has overcome the worst phase and is on track for a rebound.

According to LG Display’s second-quarter results announcement on Wednesday, demand for large-sized panel products, including organic light-emitting diode (OLED) TVs, increased, leading to expanded shipments.

“Through expanded shipments, cost innovation, enhanced inventory management, and operation efficiency activities, the scale of losses narrowed compared to the previous quarter,” the company said.

LG Display expects that demand will pick up significantly from the second half of this year. It is hoping that there will be a positive effect from the launch of Apple Inc.’s iPhone 15.

LG Display also expected a gradual increase in the supply of OLED panels to Samsung Electronics.

KB Securities Co. forecast that LG Display would supply 150,000 units of 77-inch and 83-inch OLED TV panels to Samsung Electronics in the second half of this year and 1.5 million units next year.

According to an earnings consensus released by FNGuide Inc., LG Display is expected to significantly improve its operating loss to 293.8 billion won ($230.9 million) in the third quarter before swinging to a profit of 127.2 billion won in the fourth quarter.

Samsung Electro-Mechanics Co. and LG Innotek Co., Korea’s two major electronics components manufacturers, also impressed the market on Wednesday by announcing better-than-expected earnings, raising expectations for the second half of the year.

Samsung Electro-Mechanics posted 205 billion won in operating profit in the second quarter, down 43 percent from the same period a year ago, on sales of 2.2 trillion won, down 10 percent.

However, the company is judged as having performed well, considering that consensus was 2.07 trillion won in sales and 190.5 billion won in operating profit.

Samsung Electro-Mechanics’ sales were up 10 percent from the previous quarter and operating profit 46 percent.

KB Securities reported recently that the multi-layer ceramic capacitor (MLCC) utilization rate of Samsung Electro-Mechanics’ component business unit is estimated to have recovered to the upper 70 percent level from the upper 60 percent level in the first quarter.

LG Innotek, in the meantime, posted 18.4 billion won in operating income in the second quarter, down 93.7 percent from the same period a year ago, on sales of 3.9 trillion won, up 5.5 percent.

The market had initially projected that LG Innotek would incur operating losses in the second quarter.

The components industry is expecting improved results in the remainder of the year, on the back of new product releases such as Apple iPhone 15 and Samsung Electronics’ Galaxy Z5 foldable phone series.

“The increase in smartphone demand in the second half of the year will directly lead to an increase in LG Innotek’s profit,” said Kim Dong-won, an analyst at KB Securities.