SK Hynix Posts Record Profit as It Pursues Toshiba's Chip Unit

  • Chip demand to remain strong through end of 2017, Hynix says
  • Korean company is among bidders for Toshiba’s chipmaking arm

Toshiba said to Narrow Chips Bids to Four Companies

SK Hynix Inc. posted its best-ever quarterly operating profit after strong demand for computer-server chips pushed up prices, boosting confidence in the Apple Inc. supplier’s bid for Toshiba Corp.’s semiconductor business.

Hynix, the largest provider of DRAM chips after Samsung Electronics Co., is targeting the troubled Japanese company’s flash memory division as growth in its main market tapers off. Demand for DRAM may “ease somewhat” in the second half as supply tightness eases, though the market will remain strong overall in 2017, President Kim Joon-ho said Tuesday during a call with analysts.

Operating profit was 2.47 trillion won ($2.2 billion) in the three months ended March, the Icheon, South Korea-based company said in a statement. That compares with the 2.25 trillion-won average of estimates compiled by Bloomberg. Sales were 6.29 trillion won, topping projections for 5.98 trillion won. Shares of Hynix fell 1.2 percent as of 11:10 a.m., and have nearly doubled in the past year.

“Memory prices are going strong well into the first half of this year,” Lee Jae-yun, an analyst at Yuanta Securities, said before the announcement. “The question is whether the momentum will stay strong in the second half, and what the potential impact would be on Hynix should it succeed in acquiring Toshiba’s unit down the line.”

Hynix is keen to expand its footprint in the faster-growing market for NAND chips used in everything from smartphones to connected appliances. The company however won’t let its bid for the Toshiba unit, which is expected to fetch more than 2 trillion yen ($18 billion), detract from a 7 trillion won investment in chipmaking capacity this year, Kim said.

Hynix and Samsung control more than two-thirds of the market for DRAM, commoditized memory employed in phones and personal computers. But Hynix ranks just fifth in NAND, needed in smartphones and tablet computers for functions from playing videos and multitasking to storing books and photos. If Hynix acquires Toshiba’s chip unit, its NAND market share would rise to more than 30 percent, based on 2016 data, overtaking Micron Technology Inc.

It would also get in a better position to serve Apple as it prepares to launch its much-anticipated 10th-anniversary iPhone this year. The U.S. company is Hynix’s largest customer, providing about 8 percent of its sales, according to data compiled by Bloomberg. Intel Corp. and Samsung also buy from Hynix, which on Tuesday said it expects 20 percent growth in demand for DRAM and 30 percent growth for NAND this year.

Prices of DDR3 4-gigabit DRAM chips rose to $2.98 at the end of March, up from $2.79 at the end of December, and 77 percent higher than a year earlier, according to data from InSpectrum Tech Inc. That helped propel the bottom line: net income for the quarter was 1.9 trillion won, topping analyst projections of 1.76 trillion won.

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