By Kim Yoo-chul
Staff Reporter

Samsung Electronics and Hynix Semiconductor are expected to post strong quarterly results during the July-September period thanks to rising chip prices.

The operating profits for Samsung's chip business in the third quarter are likely to reach some 1 trillion won or $850 million, while those for Hynix are estimated at some 190 billion won or $160 million, senior industry sources told The Korea Times, Wednesday.

"With the global economy recovering and chip demand picking up in the seasonally strong second half of the year, the third quarter will be even better for Samsung and Hynix. Such regaining of momentum is likely to continue by the end of this year," an industry source said, asking not to be named.

Samsung will report its third quarter results on Oct. 30, while the official earnings guidance announcement during the July-September period will come sometime in the second week of October, executives said.

Samsung has started providing earnings guidance since the previous quarter, a policy aimed at reducing confusion ahead of results.

Samsung executives said it will not include a breakdown of divisional performances or other details in the upcoming guidance.

Hynix is planning to release its latest quarterly result on Oct. 23. Hynix has been in the red for seven consecutive quarters as the economic downturn sapped demand for consumer electronics, causing the chip industry to suffer from massive inventory build-up and sliding prices.

Chip Prices Rising

Samsung and Hynix sources said strong demand for advanced dynamic random access memory (DRAM) or DDR3 chips, has resulted in a price upturn for both DRAM and NAND flash memory chips used in high-end handheld gadgets such as smart phones.

Executives said they haven't seen strong resistance to their raising their chip prices from bigger PC-related clients in the contract market. Samsung and Hynix sources said they’ve been maintaining an aggressive pricing plan over the last few months.

"The industry seems to have reached a broad consensus that the worst is over. As far as I know, Hynix has been asking its clients to pay 10 percent more in buying chips, while Samsung is also following a similar pricing policy over the last few months," according to industry source.

Dell, Hewlett-Packard and Apple are major clients for Samsung and Hynix, which are also selling chips to leading Taiwanese PC makers Asus and Renovo.

Chip makers negotiate with their clients twice a month over chip pricing plans.

DDR3 chips save roughly 30 percent power use and handle data nearly twice as fast as their DDR2 predecessors, and carry about a 10 percent price premium.

Samsung has begun producing 2-gigabit DDR3 chips using advanced 40-nanometer production technology. Hynix aims to raise the portion of DDR3 chips in its total DRAM production to some 50 percent by the end of the fourth quarter from its current 30 percent.

Contract prices for chips have been increasing sharply since April. The average contract price for the mainstream 1-gigabit DDR2 chip that runs at 667 megahertz hit $1.66 for the latter part of September, the highest level in a year, according to data from Taipei-based online chip clearinghouse DRAMeXchange.

"The supply of DDR3 chips is currently tight as Samsung and Hynix are moving faster to switch to thinner chip making technology. PC makers are also busy securing enough DDR2 inventory as worries are high that there may be a shortage," No Geun-chang, an analyst at HMC Investment, said.

Meanwhile prices of NAND flash memory chips are also rising. DRAMeXchange said a 32-gigabit NAND flash memory chip fetched $7.50 each on the spot market Monday, up more than 16 percent from $6.45 at the end of August. Some say fast sales of Apple’s iPhones are helping NAND chip prices see stabilization.

So far this year, investors are bullish on Samsung and Hynix, which together dominate nearly 70 percent of the DDR3 market.

"But the industry could risk diving back into oversupply if DRAM chip makers are over optimistic and invest heavily. Prices of DRAMs are expected to deteriorate sometime next year," Kim Young-june, an analyst at LIG Investment said.

Samsung's chip head Kwon Oh-hyun earlier said the company will boost its investments in the second half of the year, while Hynix CEO Kim Jong-kap hinted at a further investment plan in 2010.

yckim@koreatimes.co.kr