The first-quarter earnings report released Thursday by SK hynix brought to light the worse-than-expected situation of South Korea’s memory chipmakers and the resulting impact on the country’s export-driven economy.

SK hynix reported in its regulatory filing that it had achieved 6.77 trillion won ($5.83 billion) in sales and 1.36 trillion won in operating profit during the January to March period -- plunges of 22 percent and 69 percent year-on-year, respectively.

On-year, the company saw 30 percentage points shaved off its operating margin, which now stands at 20 percent. Its net profit plummeted 65 percent during the same period.

The quarterly operating profit marked the smallest since the third quarter of 2016. 

The Q1 report reflects a larger-than-forecast decrease in demand for memory products and faster-than-expected falls in prices, according to the company.

“The combination of the low seasonality for DRAMs and the conservative penchant for purchases among server companies caused the Q1 shipment volume to diminish 8 percent,” the company said. “The average selling prices for DRAMs slid 27 percent, while the prices for NAND flash nose-dived 32 percent.”

Such a poor earnings report from the world’s second-largest memory chipmaker lowers market expectations for next week’s scheduled earnings announcement from Samsung Electronics, and suggests pessimism about the overall economy.

Samsung’s semiconductor division is forecast to post 15 trillion won in sales and 4 trillion won in operating profit for the first quarter, according to the financial market.

Combined, the two Korean memory chipmakers are projected to obtain around 23 trillion won in operating profit for the whole year -- only about a third of the 65.4 trillion they earned last year.

The profit plunge in the semiconductor industry is likely to have a direct impact on the Korean economy, which relies heavily on the chipmakers’ exports.

The proportion of semiconductor exports relative to all exports grew from 10.9 percent in 2014 to 20.9 percent last year, and semiconductors were the top export item.

Due to the falling memory prices that began in the fourth quarter of last year, the country’s monthly export values have continued to fall for the past five months.

The memory price falls are likely to continue into the second quarter, so market forecasts for the chipmakers’ performance for the next three months remain negative.

But SK hynix said the company is confident that its performance will recover in the third quarter.

“The company has specific evidence and confidence about recovery in the third quarter,” said Kim Seok, a vice president at SK hynix, during a conference call. “Demand for DRAMs will rebound as internet data center businesses expand investments as well as Taiwan-based ODM companies.”

“The memory business will see another boom as the shift to 5G begins and data centers approach their time to replace servers in every three to four years,” he added.

However, the SK hynix official said it was difficult for the company to predict when DRAM prices would start rebounding.

By Song Su-hyun (song@heraldcorp.com)