SK Hynix
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com -- Ed.
SK Hynix’s earnings slump is expected to continue through 2Q23 due to deteriorating memory market conditions. From 3Q23, however, a rebound in memory supply/demand should begin in earnest, spurred by inventory reductions at clients and production cuts at memory makers.
To report 1Q23 operating loss of W4.02tn
We maintain a Buy rating and TP of W117,000 on SK Hynix. For 1Q23, the firm is forecast to log sales of W3.96tn (-49% q-q), operating loss of W4.02tn (RR q-q), and net loss of W4.21tn (RR q-q), with operating loss to outsize the market’s expectation.
In 1Q23, DRAM shipments likely fell 19% q-q, with ASP sliding 30% q-q, and NAND shipments likely dropped 21% q-q, with ASP slipping 30% q-q. Data center investment, sluggish smartphone sales, and aggressive low-pricing strategies at memory makers to reduce high inventory levels are all believed to have contributed to a deepening earnings slump. Increased inventory valuation losses due to declining memory prices likely had a further impact on earnings.
2Q23 DRAM ASP to fall 1% q-q
At SK Hynix, sluggish earnings are expected to continue into 2Q23, with 2Q23 sales forecast at W4.13tn (+4% q-q) and operating loss at W3.33tn (RR q-q). Although memory price decline continues, slowdown in the pace is anticipated. In 2Q23, we expect DRAM ASP to fall 1% q-q and NAND ASP to dip 2% q-q.
We expect earnings at SK Hynix to rebound in earnest from 3Q23. Inventory levels likely peaked in 1Q23 thanks to aggressive inventory adjustments at clients from 2Q22, and inventory decline is forecast from 2Q23. Also positive, investment reduction and production cuts are underway across the industry this year to reverse memory supply-demand deterioration.
We note that competitors with room for investment have largely turned to conservative investment strategies, with many posting massive semicon division operating losses from 1Q23. Moving ahead, demand is predicted to be driven by an uptick in memory per smartphone, re-opening in China, improved Android AP performance, and lower memory prices. From 3Q23, investment demand should recover on a rise in peak utilization rate at data centers.