SK Hynix (SKHY) stock price retreat this morning is being attributed mostly to risk-off sentiment ahead of Nvidia’s earnings on August 26 and Samsung’s shareholder-return plan that disappointed investors.
But there’s another story hanging over the memory industry: Apple is reportedly exploring Chinese DRAM from ChangXin Memory Technologies (CXMT) as it searches for additional supply and potentially lower costs.
Including today’s decline, SK Hynix shares are down some 20% versus their year-to-date high.
What we know about Apple’s ties with CXMT
Apple’s reported interest in CXMT is significant because the iPhone maker is one of the world’s largest buyers of memory, giving it considerable influence over suppliers such as SK Hynix, Samsung Electronics and Micron.
Reports indicate Apple has been testing CXMT’s DRAM for potential use in devices, while also seeking more favorable pricing amid a global memory shortage.
US lawmakers have separately raised concerns about Apple’s potential use of Chinese memory, highlighting the geopolitical complications surrounding the plan. Yet the immediate threat to SKHY stock may be less severe than the headlines suggest.
CXMT reportedly rejected Apple’s request for cheaper DRAM and instead quoted prices comparable to, or even above, those offered by Samsung and SK Hynix.
That means Apple’s China sourcing effort has not yet produced the price advantage it was seeking. In fact, the development could ultimately reinforce the pricing power of established suppliers if CXMT cannot undercut them.
Does Apple-CXMT news warrant selling SK Hynix stock?
Those invested in SK Hynix shares must still watch Apple’s search for alternative DRAM closely.
Why? Because even if CXMT can’t offer Apple a meaningful price discount, supply diversification itself has value in a tight memory market.
Apple does not necessarily need CXMT to be the cheapest supplier; securing another source of DRAM could help the giant reduce its reliance on the likes of SK Hynix at a time when memory availability remains constrained by strong AI-related demand.
That creates a potential headache for SKHY.
If Apple Inc eventually qualifies CXMT’s chips for meaningful production volumes, some of the DRAM demand currently directed toward established suppliers will migrate to China. Plus, it may give the iPhone maker greater negotiating leverage in future pricing discussions.
In other words, CXMT doesn’t have to undercut SK Hynix Inc today to become a “longer-term” competitive threat.
For SKHY investors, the concern is therefore less about an immediate hit to earnings and more about the gradual erosion of its customer concentration, pricing power and share of the broader DRAM market.
How Wall Street recommends playing SKHY shares
On the flip side, however, investors should note that Wall Street remains bullish as ever on SKHY shares, especially since they’re trading at a rather attractive 6.5x forward earnings.
The consensus rating on SK Hynix remains at Strong Buy – with the mean price target of roughly $245 indicating potential upside of about 70% from here.
The post Is Apple really the reason behind SK Hynix stock price decline? appeared first on Invezz
