SK Hynix expects soft server demand after Q3 profit surge

[SEOUL] SK Hynix, the world's No.2 memory chip maker, said it expected inventory build-up by Huawei's competitors in China to boost mobile demand in the current quarter, but its mainstay server demand would remain week.

The South Korean company, which counts Apple Inc and Huawei Technologies among its customers, said Chinese smartphone vendors were building up inventory to gain market share as Huawei faced US restrictions.

The market for server chips however would remain difficult until customers begin to stock up again later this quarter or early next year, it added.

DRAM chips took up 72 per cent of SK Hynix' total revenue in the third quarter, and about 40 per cent of that was server DRAM, according to its earnings document.

The chipmaker reported third-quarter operating profit of 1.3 trillion won (S$1.64 billion), up from 473 billion won a year earlier as Huawei's rush of orders before US restrictions offset weak server demand. The result was in line with analysts'expectations.

SK Hynix agreed in October to buy Intel Corp's NAND memory chip business for US$9 billion in an all-cash deal, aiming to more than triple its NAND revenue in the next five years, compared with 2019.

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It aims to leverage the acquisition to scale up and expand in the fast-growing data centre market, CEO Lee Seok Hee told an earnings call.

SK Hynix has enough financial resources to fund the deal, although sales of its shares in Japan's Kioxia Holdings Corp are also an option, CFO Cha Jin-seok said.

SK Hynix would use other means like cash, borrowing and asset securitisation to fund the purchase, while maintaining a cautious investment strategy for its DRAM business, executives said.

SK Hynix shares were up 1.1 per cent compared to a 0.8 per cent rise in the wider market.

REUTERS