July 26, 2012 / 10:55 AM / 6 years ago

SK Hynix, LG Display tie fortunes to Apple as economy slows

SEOUL (Reuters) - Asian technology component makers such as SK Hynix (000660.KS) and LG Display (034220.KS) are looking to Apple to rescue the battered sector as a worsening global outlook threatens demand for high-tech gadgets.

Apple Inc (AAPL.O) is widely expected to release its latest iPhone in October, although the company itself has provided no timeline. Its popular products have been a boon to Asian companies that supply the chips, screens and other components, but until the orders come through, some companies are stuck with heavy supplies and limited demand.

“Many had thought initially chip prices would rebound in the second half when Apple launches a new iPhone. But with no clarity on when it will be released and speculation growing that it could be delayed towards the end of this year, expectations for a chip sector recovery is being pushed back again,” said Byun Han-joon, an analyst at KB Investment & Securities.

“Everybody is just looking at Apple and waiting when it will start placing orders because there’s simply no other major customers who can soak up excessive components.”

SK Hynix, the world’s No.2 computer memory chipmaker, warned on Thursday that a sharp production cut by its bigger rival Toshiba Corp (6502.T) would do little to lift battered flash memory chip prices.

“With a weak global economy and slow demand growth... coupled with weakening seasonal demand starting from November, it’ll be difficult to expect NAND flash chip prices to rebound significantly,” Kim Ji-bum, head of worldwide marketing and sales division at SK Hynix, told analysts.

“We don’t expect Toshiba’s production cut to have a major impact on prices in the third quarter and it is also questionable whether it could improve prices in the fourth quarter,” Kim said.

NAND chip prices tumbled 34 percent last year and another 46 percent in the first half of 2012, as Apple sold fewer iPhones last quarter and laptops and ultrabooks have yet to take off.

LG Display, a major supplier of panels for the iPad and iPhone, posted a narrower quarterly loss as sales to Apple grew and TV panel prices showed signs of stabilization, although $178 million price-fixing charges wiped out underlying profits.

iPhone 5

Apple plans to embed touch sensors in its new iPhone to make screens thinner, according to analysts and people familiar with the matter. But the low production rate of the display component remains the biggest hurdle in introducing the iPhone 5 in large quantities.

Barclays analysts said in a note on Tuesday that slower iPhone 5 production would postpone a recovery in flash chip prices to September.

They estimate flash chip demand could fall by 4 percent in the current quarter should iPhone 5 production is 10 million units less than what it expects, and drop by 6 percent if output is 15 million units less than anticipated.

“There is indeed a view that NAND prices could fail to stage a rally because of one customer’s market dominance,” Kim at SK Hynix said.

“But other manufacturers from Google to Microsoft are also planning new products and that will eventually diversify the customer base and improve the overall demand outlook.”

What makes chipmakers vulnerable, as their reliance to Apple increases, is that these packaged chips with Apple’s controller technology become obsolete and could worsen profit prospects just when there are no other major buyers lined up.

“Any leftover packaged NAND for Apple cannot be sold to other customers and becomes excess inventory,” said Peter Yu, an analyst at BNP Paribas.

Reporting by Miyoung Kim; Editing by Ryan Woo

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