Strong PC and Server Demand to Drive up 2Q21 Earnings
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
SK Hynix’s 2Q21 earnings growth is to be driven by strong PC and server memory demand. In particular, we expect to see robust new server demand alongside the rollout of new server CPUs.
Strong PC and server demand to drive up 2Q21 earnings
We maintain a Buy rating and TP of W170,000 on SK Hynix. The firm is to book 2Q21 sales of W9.36tn (+10% q-q) and OP of W2.77tn (+109% q-q). In 1Q21, healthy PC demand led global memory supply/demand improvement.In 2Q21, with PC demand remaining robust, improving server demand from data centers should bolster earnings. We note that shipments of new server products such as Intel’s 10nm Ice Lake server CPUs and the Whitley platform have begun in earnest in 2Q21.
Built on the latest architecture, Sunny Cove, Intel’s Ice Lake boasts 20% performance improvement over previous products. Memory bandwidth is enhanced by up to 100% by a rise in memory channels (from six to eight) and new memory prefetching technology. It is the first server processor that Intel has released on the 10nm process, following five years on the 14nm process, and it is partnered with the Whitley platform, which comes after four years of the Purley platform.
Expanding industry-wide DRAM investment poses potential risk
Noting improving memory supply/demand conditions, we believe that aggressive DRAM investment across the industry could pose a risk. At its 1Q21 earnings conference, SK Hynix announced plans for DRAM investment—given today’s tight DRAM supply/demand conditions, the firm decided on early execution of its 2022 DRAM investment. SK Hynix also remains somewhat reserved regarding production line conversion from DRAM to CIS.
Meanwhile, Nanya, the world’s fourth-largest DRAM manufacturer, has recently announced plans for new fab construction based on investment of TWD300bn over the next seven years. For Nanya’s first new fab since 2008, construction is to commence in 2H21 and wrap up by end-2023. Against this backdrop, we advise investors to pay keen attention to SEC and Micron’s future moves regarding DRAM investment. In the case that all plays choose aggressive DRAM investment, DRAM supply/demand conditions could prove less favorable next year.