By Joyce Lee

SEOUL (Reuters). South Korean chipmaker SK Hynix Inc claimed it expected strong demand for its server chips to offset slower growth from mobile phones and personal computers. After reporting a more than doubled first-quarter profits from a year earlier, the company said that this quarter’s profit exceeded $1 million.

Tuesday’s earnings report by the second largest memory chipmaker in the world showed a 16% rise in Q1. This growth was driven by demand from its server customers. Market expectations were slightly lowered due to occasional quality control costs.

Kevin Noh (SK Hynix chief marketing officer) stated that “Companies have solid IT spending plans and are even increasing slightly despite the outside uncertainties which arose during the first quarter.”

“We expect strong server chip demand in 2022 due to the fact that we had to postpone some data centre constructions last year, because of COVID,” he stated.

China’s COVID-19 Lockdown is the main risk that China has in driving lower chip demand for mobile and personal computers. The company stated however, that it anticipated a rebound in the second quarter as manufacturers launch more products before the year ends.

SK Hynix shares have dropped about 15% over the past year. The same goes for rivals Samsung Electronics (OTC) and Micron Technology Inc. (NASDAQ:) on worries about China’s COVID-19 Lockdown and inflationary pressures that could affect component shortages as well as consumer demand.

SK Hynix shares traded down 2.7% Wednesday on a market that was down 1.1% overall.

Canalys, a research firm, said that global smartphone sales fell by 11% in January and March due to unfavorable economic conditions and slow seasonal demand.

EQUIPMENT DELAYS

Component shortages in the chip sector have caused delays in shipping chip equipment, limiting capacity expansions and upgrading across the industry.

SK Hynix will bring in equipment throughout the year to achieve its capacity growth targets. It also plans to increase its yield rate to better meet customer demand, Noh stated.

In the quarter ended January-March, operating profit rose by 2.9 trillion won ($2.3billion), its highest profit in the first quarter since 2018. Refinitiv SmartEstimate reported that while this profit was higher than the 1.3 trillion won earned a year ago, it still fell below analyst’s expected profit of 3.0 trillion won.

Even though mobile demand is slowing, there was a disturbance at the Kioxia NAND flash-chip plant in February. Western Digital (NASDAQ:) Solid shipments were due to contamination of raw material, analysts stated.

SK Hynix claimed it had reserved 380 billion won ($301million) for a one-off expense to compensate customers who purchased DRAM chip made in mid 2020 that were later found to have quality problems after they were used extensively for over a decade.

According to the company, the industry will continue growing this year due to server demand. The industry’s volatility seems to have decreased.

Executives said that customers have learned how to secure volume and stock up on safety stocks during supply disruptions in the last two years. SK Hynix has, in contrast, focused on profitability and made fewer products sensitive to client business fluctuations.

The revenue grew 43% year-over-year, to 12.2 trillion won.

($1 = 1,261.0000 won)