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Semiconductors

SK Hynix shares hit fresh high; signaling DRAM supercycle

Dec 02, 2020 (Gmt+09:00)

SK Hynix's second-generation DDR5 DRAM


SK Hynix Inc., the world's second-largest memory chipmaker, saw its share price climb to a historic high on Dec. 2, posting a higher gain than the world's No. 1 memory chipmaker Samsung Electronics Co. thanks to growing anticipation of a memory chip business revival next year. 

Unlike Samsung Electronics, which has a widespread portfolio including foundry, smartphones and appliances, SK Hynix is purely a memory semiconductor company, making it all the more attractive for investors eyeing the chip industry.

SK Hynix's share price has rocketed 325% during the semiconductor rally from May 2016 to this day, during which Samsung Electronics' share price has risen 180%.

SK Hynix's share price hit fresh highs closing at 109,000 won ($99), up 8.46%, on Dec. 2. 

BOOM CYCLE ANTICIPATION HIKES SHARE PRICE

The surge in SK Hynix's share price is largely owing to expectations that memory semiconductors will return to a long boom cycle. Foreign and institutional investors went on a buying streak over the last couple of days, hoping to buy SK Hynix shares at an affordable price ahead of next year's anticipated recovery.

According to Bloomberg, the estimated growth rate for SK Hynix’s earnings per share (EPS) is around 75%, the highest in the semiconductor industry.

The memory chip industry fared well in the first half of the year as the increasing contactless trend prompted server companies to purchase memory chips for data center expansion. Smartphone and laptop manufacturers also bought products in advance on concerns over potential chip production issues.

But this didn’t last long, as DRAM prices plummeted in the second half of the year. Clients that stocked up chip supplies during the first half of the year delayed placing additional orders and instead were in a secure position to negotiate prices. Server companies began to cut back on investments in fear of a global recession. Such factors led to a downward trend in memory chip prices.



Recently, however, there are signs pointing to upward movement in memory chip prices. Last month, market data provider DRAMeXchange announced the spot price for DDR4 8 gigabyte DRAM at $2.85, the same as the previous month. Industry watchers are saying that the DRAM prices have bottomed out and the only way is up. 

On Dec. 1, Micron Technology Inc., the world’s sixth-largest NAND player, raised its Q1 guidance to $5.7 billion-$5.75 billion, up from the previous $5 billion-$5.4 billion. It also adjusted the forecast for earnings per share to $0.61-$0.65 from the previous $0.32-$0.45.

On the day of the announcement, Micron’s share price climbed to its highest level since 2000.

DRAM DEMAND TO SURGE IN Q2 2021

Securities firms are expecting DRAM prices to rebound in the second quarter of next year. Already, sales for PC computers rose to a 10-year high due to the prolonged contactless environment amid COVID-19.

Also, Chinese smartphone manufacturers Oppo, Vivo and Xiaomi are buying massive amounts of semiconductors in aims to boost their market shares in the aftermath of US sanctions against Huawei.

Deep-pocketed clients are expected to resume investment into memory chips early next year since global server companies such as Microsoft, Bytedance, Alibaba, Tencent among others will need to stock up their DRAM supplies.

According to Kiwoom Securities, the DRAM supply shortage is likely to begin in the first half of next year, ushering in a supercycle until 2022. Once mass production for next-generation DDR5 DRAM kicks off, supply will be reduced since processing will be more difficult.

SK Hynix is set to benefit the most from the rise in chip prices as the company is expected to post around 9 trillion won in operating profit in 2021 and then surge to 24 trillion won by 2022, according to Park Yuak, an analyst at Kiwoom Securities.

Market watchers predict the bullish trend to continue as SK Hynix maintained an upward trend for 21 months the last time it hit a record high.

Write to Jae-yeon Ko and Ji-yeon Sul at yeon@hankyung.com

Danbee Lee edited this article.

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