World's 2nd biggest memory chipmaker warns of tough first-half on China slowdown

Doubling its efforts: SK Hynix vowed to beef up investment and cut costs to overcome

SEOUL:The world's second-biggest memory chipmaker, South Korea's SK Hynix Inc <000660.KS>, flagged a tough first half due to U.S.-China trade frictions and China's slowing economy, as its fourth-quarter profit missed market expectations on Thursday.

It was the Samsung Electronics rival and Apple Inc supplier's first profit decline in two years, but its shares rebounded from recent falls due to hopes the global chip market is nearing the bottom, analysts said.

"Demand slowdown across the IT market, which began in the fourth quarter last year, is continuing into 2019," Executive Vice President Jin-Seok Cha told analysts on the earnings call.

"As such, this year began with lower demand visibility and higher inventory level across the industry as the macroeconomic uncertainties persist."

SK Hynix said its October-December operating profit was 4.4 trillion won ($3.9 billion), below a 5.1 trillion won average forecast drawn from 26 analysts, according to Refinitiv data.

The company said it planned to cut investment in equipment purchases by 40 percent in 2019 compared with last year, and might consider further reductions in capital expenditure if market conditions worsened.

Company Vice President Sean Kim said the memory demand slowdown would be bigger than expected into the first half of 2019 due to China’s economic slowdown and the U.S.-China "trade situation".

However sales would pick up in the second half, boosted by the launch of cloud services and demand for chips with bigger memory capacity in mobile products, the company said.

Demand for server DRAM chips, which help devices perform multiple tasks, also would be buoyed in the second half as U.S. data centres reduced inventory from currently high levels.

SHARES RISE

Shares in SK Hynix rose 3.4 percent as of 0234 GMT, versus the wider market's <.KS11> 0.2 percent gain.

"It seems like investors are rather relieved that it has hit rock bottom," said Lee Kyoung-min, global market strategy team manager at Daishin Securities.

Market leader Samsung earlier this month estimated a 29 percent drop in quarterly profit, blaming weak chip demand. This followed Apple's cut to its quarterly sales forecast citing slowing iPhone sales in China.

Taiwan's Semiconductor Manufacturing Co Ltd (TSMC) <2330.TW> joined in last week, forecasting its sharpest quarterly revenue fall in a decade.

China's economy cooled in the fourth quarter under pressure from faltering domestic demand and U.S. tariffs, weighing on profits for firms ranging from tech giants to big carmakers.

SK Hynix said its DRAM chip shipments fell by 2 percent in the fourth quarter, while its selling prices slid 11 percent from a quarter ago.

For NAND flash chips, which provide long-term data storage, shipments rose by 10 percent but the average selling price fell by 21 percent, the company said. - Reuters