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[SEOUL] South Korea's SK Hynix Inc on Tuesday said its DRAM shipments are likely expand around 20 per cent next year, in line with market growth, as a demand surge for server chips more than makes up for a slight slowdown in smartphones.
Stronger-than-expected demand for server chips has even prompted a review its product portfolio, SK Hynix said, after reporting a rise in server chips' revenue contribution to about 35 per cent in April-June from around 25 per cent a year earlier.
"What is important today is not more servers, but servers with higher memory," said Chief Operating Officer Lee Seok-hee.
The world's second-biggest memory chip maker behind Samsung Electronics Co Ltd is enjoying a so-called super-cycle where demand for increasingly capable devices, requiring a higher number of more sophisticated chips, has brought about a supply shortage.
Those factors have combined to yield higher prices and wider profit margins, helping chipmakers report successive earnings records. On Tuesday, SK Hynix said operating profit in its second quarter smashed a record set in the first.
Analysts expect the super-cycle to last at least through 2018 when extra capacity comes online, with server chips becoming a driving force. SK Hynix said evolving technology such as cloud computing has increased the chip count of an internet data server by 70 per cent or more.
"If the cycle was driven by mobile demand in the past two years, now it looks like it's servers," said analyst Kim Rok-ho at Hana Financial Investment.
SK Hynix said it has seen a slight slowdown in some areas of smartphone demand. It nevertheless expected a continuing stream of new handsets together with robust server demand to keep chip supplies tight in the second half of 2017, gradually easing toward year-end.
It said it would expand capacity by 3 to 5 per cent this year to meet demand, prompting it to consider raising 2017 capital expenditure plans from 7 trillion won (S$8.5 billion )by an unspecified amount.
Earlier on Tuesday, SK Hynix reported a 574 per cent rise in April-June profit to 3.1 trillion won, versus a 3 trillion won Thomson Reuters StarMine SmartEstimate from a poll of 22 analysts. Revenue rose 70 per cent to 6.7 trillion won.
The result keeps it on track for what analysts estimate to be its largest-ever annual operating profit of 13 trillion won.