With chip price falling, SK hynix feels downward pressure

By Baek Byung-yeul

SK hynix's stock price has plummeted by more than 18 percent within a week, due to falling memory chip prices and market concerns that the semiconductor business has reached its peak.

On Thursday, the stock price of the world's second-largest DRAM maker closed at 100,500 won, down 4.74 percent from Wednesday. It was down for the sixth day straight, since the company's stock price ended at 121,000 won on Aug. 4.

The stock price of SK hynix dropped further during trading time, Thursday morning, after Morgan Stanley cut down the chipmaker's stock target price to 80,000 won from 156,000 won in its report titled “Memory ― Winter is coming.”

The financial firm also downgraded its rating on SK hynix to “underweight,” based on a slowing increase in chip prices as supply catches up with demand. The company also downgraded its price target of Samsung Electronics to 89,000 won from 98,000 won.

The fundamental cause of the stock price plunge is falling memory chip prices. According to market tracker TrendForce, the spot price of DRAM memory chips for PCs from May 20 to Aug. 3 declined by 32 percent. The organization also forecast a contraction in PC DRAM prices of up to 5 percent in the fourth quarter compared to the third quarter.

Local analysts in the semiconductor sector also downgraded their target prices of SK hynix due to the falling PC DRAM prices.

“We lowered SK hynix's operating profit for 2022 from 14.4 trillion won to 10.8 trillion won,” Hana Financial Investment researcher Kim Kyung-min said. “When the spot price of PC DRAMs falls, buyers usually wait for the price to fall further because they think they don't have to fill up their inventory if the price may fall further tomorrow.”

Despite the negative sentiment, SK hynix expects the favorable conditions will be continued in the memory chip business through the second half of next year.

“The company anticipates the demand for NAND Flash products will grow amid increasing adoption of high-capacity storage in mobile devices, while that for enterprise solid-state drives is also expected to increase,” the company told investors last month when announcing its second-quarter earnings. The company also aims to improve sales volume of large-capacity server DRAMs.

Also, industry views are that the stock price decline will not last long as SK hynix has retained its inventory level for around a week.

“The inventory level of major memory chip manufacturers including Samsung Electronics, SK hynix and Micron has remained less than a week while production bottlenecks are intensifying,” said Lee Jae-yun, an analyst at Yuanta Securities. “It is unlikely that we could see a sharp drop in prices.”

Compared to SK hynix, expectation is still high for Samsung Electronics as the world's second-largest foundry chipmaker is expected to see increased orders for manufacturing chips.

“As demand for non-memory chip sectors enters peak season in the third quarter, Samsung's shipments will increase. The contract price of foundry chips is also expected to rise,” said Park Yu-ak, an analyst at Kiwoom Securities.