SK hynix, the world's No. 2 supplier of computer memory chips, is expected to beat the long-time market leader Samsung Electronics in terms of profit margin during the April-June period.
This is the first time in almost eight years for SK hynix to be more profitable than Samsung. In the third quarter of 2005, SK hynix (then Hynix Semiconductor) toppled Samsung by generating 31 percent in profit margin higher than Samsung's 29 percent, they said.
"As the memory chip shortage continues, conventional DRAM prices have extended gains. Consolidation and slowing technology migration is leading to significantly slowed supply growth. This undersupply and improved pricing are now finally impacting mobile DRAM prices," said Mark C. Newman, senior analyst at Bernstein Research in Hong Kong, Monday.
DRAM is a simple dynamic random access memory. The chip is used to read data. The portion of DRAM chips for PCs and other DRAMs by SK hynix was 80 percent in the latest quarter, which is good compared to Samsung Electronics' 61 percent, according to analysis by Bernstein and DRAMeXchange, Asia's biggest tracker in chip pricing and market moves.
The profit margin of SK hynix during the latest period is expected to reach between 25 percent and 31 percent because PC DRAM prices were up 136 percent and 94 percent in spot and contract markets, respectively, since hitting bottom late last year.
Woori Investment said SK hynix's revenue may reach 3.91 trillion won during the period, while its operating profit is expected to reach 1.22 trillion won.
Samsung's chip division is expected to report 9.37 trillion won as its quarterly revenue during the same period.
But Samsung is said to report 1.81 trillion won in operating profit, making it possible to garner a 19.3 percent operating profit margin, according to a report by Hanwha Securities.
Samsung sold $2.5 billion in DRAMs during the January-March period, up from 0.4 percent a year earlier. SK hynix sold $1.83 billion worth of DRAMs for the first three months of this year, an increase of a huge 22.1 percent year-on-year, according to market research firms.
"SK hynix has a huge exposure to DRAMs and is well poised to report the rewards of the new paradigm. Samsung may attribute the expected huge gap to the company's migration into profitable mobile DRAM chips to be used in smartphones and tablets," said a senior technician at one of Samsung's local chip-making factories, by telephone.
"Samsung should have maintained flexibility in managing the chip business. It's a humiliation and unacceptable," he said.
The deepening feud with Apple in the current patent dispute is cited as the other reason that has dragged down Samsung's chip division.
Amid an era of connected devices such as smartphones and tablets, Samsung Electronics is moving toward processor chips rather cutting the production of conventional memory chips.
DRAMs and NAND chips are designed to only read and store data, which are volatile and cyclical. Processor chips, which are categorized as logic chips, are less volatile and profitable because the chips are used to power entire computing devices.
But Samsung's transition has been stalled as one of top clients, Apple, is using Samsung less as a parts provider.
As The Korea Times reported, Apple signed with Taiwan's TSMC to produce the iPhone maker's next A-Series logic chips to be used in next-generation iPhone and iPad products.
"Samsung's logic chip division failed to impress analysts and investors in the second quarter because Apple has been consistent in cutting its reliance on Samsung in processor chips. Samsung should remember that following decades of value destruction, bankruptcies and exits, the DRAM industry is poised to emerge into a low-growth but highly concentrated, rational and value-creating industry."