Doubt on Super Cycle
As the stock prices of SK Hynix dropped over 5% due to the “UBS Shock” on February 10, securities companies, which painted a rosy outlook for SK Hynix Inc., are now revaluating the memory chipmaker. This is because they are starting to doubt the super cycle of the semiconductor market that pulled up the stock prices.
The fact that UBS Securities downgraded its investment opinion on SK Hynix’s stocks on Feb. 8 deepened the controversy over the super cycle of semiconductors, and the doubt about the semiconductor industry directly hit the market.
UBS stirred up the controversy over the super cycle of semiconductors. There was already a growing unease about whether SK Hynix hit a high point in the recent stock market, and the report released by UBS became the catalyst that spread anxiety. UBS said in its report on the 8th, “Thanks to rosy performance outlook for 2017, the stock price of SK Hynix jumped a whopping 106 percent from May last year. However, the company has not that bright outlook for 2018. We believe that SK Hynix’s performance will reach a record high in 2017 and then its operating profits will drop 36 percent in 2018.”
In particular, UBS forecasted that DRAMs, the main product of SK Hynix, will suffer from oversupply between the second and third quarters. It also said that the oversupply of NAND flash memory chips will begin from the latter half of 2017 and it will be deepened in 2018 in earnest. In short, there is a virtuous circle from a short supply to demand expansion right now, but the end of the boom is coming.
UBS downgraded its investment opinion on SK Hynix from “buy” to “neutral.” In the stock market, “neutral” often means “sell.” The securities firm also predicted that the semiconductor market will show a slowdown in growth. On the 10th, the stock price of SK Hynix decreased as much as 5 percent as foreign investors and institutions sold the shares for profit-taking owing to UBS’s negative outlook for the company.
The market has already expressed concerns over the inventory of semiconductors. According to the National Bureau of Statistics of China, the nation’s IT inventory was about to reach the previous high point as of the end of Jan. Song Myung-sup, an analyst at HI Investment & Securities, said, “There is a possibility that Chinese set manufacturers are reducing its inventory and the semiconductor market is slowing down from around the second and third quarter. The boom in the semiconductor market will continue in the first quarter but you need to recheck the stock in the market and the trend of spot prices after the second quarter.”
In addition, the market is still showing a doubt about the possibility of Samsung Electronics’ expansion of its semiconductor facilities. Hwang Min-sung, an analyst at Samsung Securities, said, “The most frequently asked question at recent meetings with investors was about a high point of the cycle of the memory semiconductor market. It represents their fear that they must sell the stocks before reaching a high point.” To be sure, some analysts say that the super cycle is still valid. CIMB analyst Lee Do-hoon said, “When super cycle lets up, the rapid increase in facility investment, growing production and abnormal management occur at the same time. Such signs haven’t appeared yet.”
The negative outlook on the acquisition of Toshiba also rolled back the stock price of SK Hynix. International credit rating agency Moody's said in its report, “When SK Hynix takes over a minority stake in Toshiba’s memory semiconductor business division, its credit rating can be adversely affected. Since the company will hold less than a 20 percent stake, it will be limited to securing technology and cash flow. Therefore, it will be difficult for SK Hynix, the world’s fourth largest player in the NAND market, to increase its market share.”