SK Hynix Beats Estimates as Chip Prices Rally After Fire

SK Hynix Inc. (000660), the world’s second-largest maker of memory chips, posted fourth-quarter earnings that beat analysts’ estimates after a fire at a China plant pushed up prices during a typically high-demand season.

Net income, excluding minority interest, rose to 788.8 billion won ($731 million) in the three months ended December from 163.5 billion won a year earlier, Icheon, South Korea-based SK Hynix said today. That compares with the 548.2 billion-won average of 23 analyst estimates compiled by Bloomberg.

The supplier to Apple Inc. (AAPL) and Sony Corp. (6758) benefited from a rally in chip prices to three-year highs after the blaze on Sept. 4 in Wuxi, eastern China. Strong demand during the year-end shopping season for mobile devices such as smartphones that use the chips, as well as the release of new iPhones, boosted Hynix’s earnings during the quarter.

“Chip prices may fall until next month after the strong run-up following the blaze,” Lee Min Hee, a Seoul-based analyst at I’M Investment & Securities Co., said before the earnings. “However, limited chip supplies and the potential release of bigger iPhones are stoking expectations that demand for memory chips this year will likely outstrip supply and limit the price decline.”

SK Hynix gained 4.4 percent to close at 36,800 won in Seoul trading today, while South Korea’s Kospi index rose 0.3 percent.

Wuxi Cost

Chip prices soared 19 percent a day after the incident and they remain near a three-year high of $2.92 reached on Jan. 15.

The price of the benchmark DDR3 2-gigabit dynamic random-access memory chip closed at $2.90 today, according to DRAMeXchange, Asia’s largest market for the components. The price was $1.60 on Sept. 4.

SK Hynix plans capital spending this year of about 4 trillion won, up from about 3.56 trillion won spent last year, President Kim Joon Ho told a conference call today.

The chipmaker used about 500 billion won of spending to restore the fire-hit plant in China, while the company may spend an additional 200 billion won this year for a complete restoration, Kim said.

“Productions at the Wuxi plant are fully recovered now to a pre-fire level,” Kim said.

Operating Profit

SK Hynix shipments of DRAM chips are expected to rise about 20 percent in the first quarter while deliveries of NAND flash chips will increase by a mid-single-digit percentage from the quarter ended December, Kim said.

Operating profit, or sales excluding the cost of goods sold and administrative expenses, rose to 784.8 billion won in the fourth quarter, SK Hynix said. Revenue increased 24 percent to 3.37 trillion won.

Apple sold 51 million iPhones in the quarter ended Dec. 28, after it began selling the iPhone 5s and the cheaper 5c in September, the Cupertino, California-based company said yesterday.

Apple is developing new iPhone designs featuring larger screens with curved glass and enhanced sensors that can detect different levels of pressure, a person familiar with the plans has said. Two models are planned for release in the second half of 2014, said the person, who asked to not be identified because the details aren’t public.

To contact the reporter on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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