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Samsung Electronics, SK Hynix Facing Earnings Shocks in 1st Quarter
Operating Profits Forecast to Be Halved
Samsung Electronics, SK Hynix Facing Earnings Shocks in 1st Quarter
  • By Yoon Young-sil
  • March 25, 2019, 11:18
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Samsung Electronics Co. and SK Hynix Inc. are expected to deliver earnings shocks in the first three months of the year. 

Samsung Electronics Co. and SK Hynix Inc. are expected to see their operating profits cut by half in the first three months of the year. Some say that the market conditions will improve, driven by demand recovery.

Financial market researcher FnGuide forecast on March 24 that the operating profits of the two semiconductor producers in the first quarter would be halved compared to a year earlier.

The market consensus of Samsung Electronics’ operating profit for the January-March period stands at 8.12 trillion won (US$7.16 billion), down about 48.1 percent from 15.64 trillion won (US$13.79 billion) a year earlier

The average operating profit forecast for SK Hynix comes to 1.88 trillion won (US$1.66 billion) over the same period, down 56.8 percent from 4.37 trillion won (US$3.85 billion) a year ago.

The decrease in performance seems to be led by the global semiconductor market slowdown. The companies recordedtheirhighestbusiness showings with “super cycle” in the semiconductor market last year but they are expected to suffer a sharp decline in their operating profits due to the economic slowdown and the base effect this year.

In particular, the price of memory chips, including DRAM and NAND flash, has plunged in a short period of time this year and market conditions are weaker than expectations. In fact, the price of DRAM, which is a main product, showed a double digitsofthedecline forthesecondmonthinarow this year for the first time ever. DRAMeXchange, a market research firm that tracks memory chip prices, said fixed DRAM prices fell 14.5 percent from the previous month to US$5.13 (5,817 won) per unit (DDR4 8Gb DRAM) last month. The figure dropped 17.24 percent in January compared to a month earlier. It plunged by as much as 37.4 percent from US$8.19 (9,287 won) in September last year when it hit a high. The price of NAND flash chips decreased as well.

The price of NAND chip (128Gb MLC) recorded at US$4.22 (4,785 won) per unit last month, down 6.64 percent from a month ago. It also decreased 24.6 percent from US$5.60 (6,350 won) in June last year.

An official from the industry said, “Prices show a steeper decline than expectations. The fall is gradually slowing down so we are bracing for a recovery of demand and an oversupply in the second half of the year.”

Market bellwether Samsung Electronics and SK Hynix gained 4.09 percent and 7.66 percent in stock prices on March 21, respectively, up 6.6 percent and 13.4 percent over the past two weeks. This came after U.S.-based Micron Technology Inc. announced to reduce DRAM and NAND production by 5 percent each on March 20 (local time).

Some in the securities industry forecast that the market conditions of not only NAND but also DRAM will turn around in earnest. Choi Do-yeon, a researcher at Shinhan Investment Corp., said, “Large internet data center (IDC) companies will start to place an order for server DRAM chips from the third quarter of the year. The DRAM market conditions will show a remarkable rebound, such as a demand recovery of mobile DRAM in the second quarter and a resumption of large orders of server DRAM in the third quarter.”