SEOUL, Oct. 24 (Korea Bizwire) — SK hynix Inc. said Thursday its net profit for the third quarter dipped to the lowest level in more than three years on weak memory chip prices and global demand, but said it expected the memory industry to recover next year on adoption of 5G smartphones.
The net profit for the world’s No. 2 memory chip producer plunged 89 percent to 495.5 billion won (US$423.1 billion) in the July-September period from a year ago, the company said in a regulatory filing.
Its third-quarter sales plunged 40 percent on-year to 6.8 trillion won, and operating profit plummeted 93 percent to 472.6 billion won, the lowest since the second quarter of 2016.
The operating margin stood at 6.9 percent in the third quarter, far below the 56.7 percent from a year ago.
Operating profit was above the market consensus of 429.7 billion won, compiled by Yonhap Infomax, the financial arm of Yonhap News.
SK hynix said its dismal earnings were due to weaker-than-expected demand recovery and a steep fall in memory prices amid trade tension between the United States and China.
The revenue in the third quarter increased by 6 percent on-quarter as demand began to pick up. However, the operating profit fell by 26 percent from three months earlier due to a steep drop in DRAM prices.
“DRAM prices remained weak during the quarter, leading to a 16 percent drop in the average selling price, with the decline smaller than the previous quarter,” SK hynix said in a release.
Shipments of DRAM, used for temporary data storage in PCs and servers, increased 23 percent in the third quarter from a quarter earlier on new smartphones and expanded purchases by data centers, but the average selling price fell 16 percent over the period due to a high level of inventory, the company said.
As for NAND flash, mainly used for mobile devices, shipments slipped 1 percent on-quarter due to a high base effect, but the average selling price picked up 4 percent, it noted.
The company said it expected prices of both DRAM and NAND flash to recover next year, hoping for a sales boost from launches of 5G smartphones equipped with high-density chips.
Bolstered by a boom in the global semiconductor market, SK hynix and local bigger rival Samsung Electronics Co. registered record earnings last years, spearheading South Korea’s export growth.
However, prices of DRAM and NAND products have continued to slide this year due to slow demand and a high level of inventory.
DRAM chip prices fell as major data centers adjusted their high inventory levels of memory chips, and NAND memory was also hurt by slowing smartphone demand as more consumers wait longer to replace their handsets.
The chipmaker said it has been cutting output of major memory products and focusing on high-density products and image sensors to improve profitability.
“As a result, both DRAM and NAND Flash capacity will decrease next year compared with this year, and the amount of investment is expected to shrink considerably next year as well,” the firm said.
SK hynix said it will “effectively deal with demand fluctuations due to external uncertainties,” amid an ongoing trade war between the U.S. and China, and South Korea’s spat with Japan.
The company said the capital expenditure next year will be “considerably lower” than this year to respond to market conditions, without elaborating on the amount.
Shares of SK hynix were trading at 79,400 won on the Seoul bourse as of 9:30 a.m., up 2.19 percent from the previous session on better-than-expected earnings. The quarterly result was released before the market opening.