SK Hynix first-quarter profit beats dire estimates, warns of volatile demand

SEOUL (Reuters) – SK Hynix (000660.KS) posted a smaller-than-expected 41% drop in quarterly profit as server demand due to the coronavirus-driven shift to working from home partly offset weak smartphone business, but warned demand for chips will remain volatile.

FILE PHOTO: Employee walks past the logo of SK Hynix at its headquarters in Seongnam, South Korea, April 25, 2016. REUTERS/Kim Hong-Ji/File Photo

The chip industry has been bracing for the fallout from the COVID-19 pandemic as sales of phones for which it provides chips tumble, but has been hoping that solid server demand from data centres would cushion the blow.

South Korea’s SK Hynix, which counts Apple Inc (AAPL.O) and Huawei Technologies [HWT.UL] among its customers, reported an operating profit of 800 billion won ($649 million) in the January to March period, compared with a Refinitiv SmartEstimate of 474 billion won and an operating profit of 1.4 trillion won a year earlier.

First-quarter revenue rose 6% to 7.2 trillion won.

A weaker South Korean currency, which fell to its lowest level since 2009 in mid-March, provided a tailwind for South Korean exporters like Samsung and SK Hynix by boosting the value of overseas revenue when repatriated.

SK Hynix said it expected the server chip market to grow in the mid- and longer-term because of a rise in “contactless” IT services, but said a prolonged outbreak could increase demand volatility and disrupt production activities.

SK Hynix shares were down 0.7% as of 0007 GMT compared to a 0.5% rise in the wider market .KS11.

Analysts expect SK Hynix to improve earnings in the current quarter, but economic uncertainties are clouding its prospects in the second half.

“I don’t expect the chip industry would undergo a double-dip, but it is uncertain how much it will improve in the second half from the first half,” Hwang Min-sung, an analyst at Samsung Securities, said.

($1 = 1,232.3300 won)

Reporting by Hyunjoo Jin and Joyce Lee; editing by Richard Pullin

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