UBS becomes latest to project SK Hynix to report red figures in Q4

2019.06.19 15:02:09 | 2019.06.19 15:14:34

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Prospects have turned bleak for Korea’s SK Hynix Inc. with a select local and overseas institutions starting to flag the possibility of the world’s second-largest memory chipmaker sinking into the red in the latter part of the year in an epic reversal from its best-ever performance in 2018.

UBS projected in its latest report that SK Hynix to struggle onto the third quarter and end the final in the red, estimating a loss of 173 billion won ($146.9 million), compared with an operating profit of 1.3 trillion won in the first quarter ended March. A year ago, it posted 4.43 trillion won in operating income after a record 6.47 trillion won in the third quarter.

The UBS report predicted demand for memory chips to slacken further in the second half, debunking industry hopes for a pickup through supply adjustment from the chip majors – mainly Samsung Electronics, SK Hynix and Micron Technologies.

With expanded technology Cold War between the United States and China, UBS expects the downturn to stretch onto next year.

Meritz Securities Co., a local brokerage firm, last month projected SK Hynix incurring a bigger 277.6 billion won loss in the fourth quarter.

Kim Sun-woo, analyst at Meritz Securities, said that purchase demand in the NAND flash market that has been on a downtrend for over a year and a half isn’t heading towards recovery. An increase in the application of dynamic random-access memory (DRAM) chips is also held back despite an overall price fall, the analyst said.

SK Hynix in a conference call in April expected demand for mobile-use and server-use DRAM to improve starting in the second quarter and NAND flash industry to turn in its favor.

Other institutions are not rushing to join in on such skepticism as the technology outlook hinges on the development of the trade war.

Shares of SK Hynix rose 5.5 percent to 66,900 won Wednesday upon news that presidents Donald Trump and Xi Jinping will be holding tete-a-tete meeting on the sidelines of G20 meeting next week. The stock is nearly off 27 percent from the peak of 91,200 won on July 19 last year.

According to a brokerage consensus on Wednesday, SK Hynix is projected to recover earnings from the second half of this year and post 1.1 trillion won in operating income in the fourth quarter. Reports released by three brokerage firms this day also expected SK Hynix’s operating profit in the October-December period to remain in between 700 billion won and 1 trillion won.

Kwon Sung-ryul, an analyst at DB Financial Investment Co., however, noted that improvement level in the second half of this year is weakening and there is a prevalent outlook that SK Hynix’s earnings will deteriorate in the second half of this year. The analyst said that he expects the company to improve earnings slightly in the third quarter and raise over 1 trillion won in operating income in the following quarter.​

By Yoo Joon-ho and Lee Eun-joo

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