SK Hynix expects soft server demand after third-quarter profit surge

SEOUL (Reuters) – SK Hynix 000660.KS, the world’s No.2 memory chip maker, said it expected inventory build-up by Huawei’s competitors in China to boost mobile demand in the current quarter, but its mainstay server demand would remain week.

FILE PHOTO: The logo of SK Hynix is seen at its headquarters in Seongnam, South Korea, April 25, 2016. REUTERS/Kim Hong-Ji

The South Korean company, which counts Apple Inc AAPL.O and Huawei Technologies Co Ltd [HWT.UL] among its customers, said Chinese smartphone vendors were building up inventory to gain market share as Huawei faced U.S. restrictions.

The market for server chips however would remain difficult until customers begin to stock up again later this quarter or early next year, it added.

DRAM chips took up 72% of SK Hynix’ total revenue in the third quarter, and about 40% of that was server DRAM, according to its earnings document.

The chipmaker reported third-quarter operating profit of 1.3 trillion won ($1.2 billion), up from 473 billion won a year earlier as Huawei’s rush of orders before U.S. restrictions offset weak server demand. The result was in line with analysts’ expectations.

SK Hynix agreed in October to buy Intel Corp’s INTC.O NAND memory chip business for $9 billion in an all-cash deal, aiming to more than triple its NAND revenue in the next five years, compared with 2019.

It aims to leverage the acquisition to scale up and expand in the fast-growing data centre market, CEO Lee Seok-hee told an earnings call.

SK Hynix has enough financial resources to fund the deal, although sales of its shares in Japan’s Kioxia Holdings Corp are also an option, CFO Cha Jin-seok said.

SK Hynix would use other means like cash, borrowing and asset securitisation to fund the purchase, while maintaining a cautious investment strategy for its DRAM business, executives said.

SK Hynix shares were up 1.1% compared to a 0.8% rise in the wider market .KS11.

($1 = 1,131.3600 won)

Reporting by Joyce Lee and Hyunjoo Jin; Editing by Stephen Coates