SEOUL (Reuters) - South Korea's SK Hynix Inc 000660.KS on Tuesday said its DRAM shipments are likely expand around 20 percent next year, in line with market growth, as a demand surge for server chips more than makes up for a slight slowdown in smartphones.

The logo of SK Hynix is seen at its headquarters in Seongnam, South Korea, April 25, 2016. REUTERS/Kim Hong-Ji/File Photo

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 percent in April-June from around 25 percent 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 005930.KS 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.

TIGHT SUPPLIES

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 percent 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 percent this year to meet demand, prompting it to consider raising 2017 capital expenditure plans from 7 trillion won by an unspecified amount.

TOSHIBA SALE

Earlier on Tuesday, SK Hynix reported a 574 percent rise in April-June profit to 3.1 trillion won ($2.8 billion), versus a 3 trillion won Thomson Reuters StarMine SmartEstimate from a poll of 22 analysts. Revenue rose 70 percent 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.

SK Hynix said DRAM shipments rose 3 percent in the quarter from January-March with the average selling price up 11 percent. NAND shipments fell 6 percent while the price rose 8 percent.

In NAND, SK Hynix has offered to help finance a bid for the memory chip business that Japan's Toshiba Corp 6502.T has put up for sale. The firm also wants to secure a stake outright.

SK Hynix's share price fell as much as 2.6 percent on Tuesday versus a 0.2 percent decline in the Kospi benchmark index .KS11, as investors booked profit after the consensus-matching earnings, analysts said.

($1 = 1,113.9100 won)