SK Hynix warns of slowing smartphone memory-chip and NAND flash sales

Hynix warning over smartphone sales slowdown indicates end of memory-chip price spike

SK Hynix has become the latest major chip firm to warn of a slowdown in demand for smartphone semiconductors.

The warning, which comes a week after Taiwan Semiconductor Manufacturing Company (TSMC) warned of a slowdown, indicates a levelling off in demand for smartphones and also, perhaps, the end of the memory chip and NAND flash boom that helped Samsung to overtake Intel as the world's biggest chip maker by revenue.

According to Reuters, though, Hynix has warned that sales of memory chips for the smartphone sector are beginning to slow down, a warning that came despite the fact that its first-quarter market results beat analyst expectations.

The South Korea-based semiconductor company's operating profit increased by 77 per cent to 4.4 trillion won ($4 billion) during the first quarter of 2018.

Hynix has warned that sales of memory chips for the smartphone sector are beginning to slow down

That followed a year in which it became the third largest semiconductor manufacturer, according to Gartner, on the back of booming demand for memory and NAND flash.

However, Hynix's first quarter results were slightly slower than the previous quarter's. Last year, it enjoyed four consecutive quarters of strong revenue and profit growth, but that is now drawing to a close. Its share price fell by three per cent in response.

HI Investment & Securities analyst Song Myung-sup told Reuters that the company has experienced a "much steeper" decrease in shipments than previously thought. He said the results follow "concerns about slowing mobile demand".

But the world's second-biggest memory chip maker told investors that it has seen growth in other areas of its business, including servers.

Sean Kim, head of DRAM marketing at SK Hynix, said: "Although overall growth in smartphone sales will stagnate, China's big four smartphone firms are leading the accelerated adoption of high-capacity chips.

"As for servers, North American internet data centre firms as well as Chinese firms led by Baidu, Alibaba and Tencent are increasing investment."

The global smartphone market has seen a great deal of competitive change in recent years, with Apple and Samsung focusing on ever-more expensive devices, while lower-cost Chinese manufacturers increase their market share in the lower- and mid-range.

Although overall growth in smartphone sales will stagnate, China's big four smartphone firms are leading the accelerated adoption of high-capacity chips

Last week, TSMC slashed its revenue targets for 2018 after warning about waning demand from the smartphone sector

In a recent interview with Reuters, Atlantic Equities analyst James Cordwell suggested that the iPhone has been particularly affected by weak sales.

"Apple represents nearly 20 per cent of TSMC's revenue so the outlook potentially points to weaker-than-anticipated iPhone demand," he said.

Despite these warnings, a recently published report from Gartner revealed that the semiconductor industry grew by 21.6 per cent in 2017, largely off the back of booming demand for memory and NAND flash from the smartphone sector.

"2017 saw two semiconductor industry milestones — revenue surpassed $400 billion and Intel, the number one vendor for the last 25 years, was pushed into second place by Samsung Electronics," said Gartner research director George Brocklehurst.

"Both milestones happened due to rapid growth in the memory market as undersupply drove pricing for DRAM and NAND flash higher."