SK Hynix Operating Profit Hits 7-Year Low, Rebound Expected This Year (Comprehensive)

Annual Operating Profit of SK Hynix (Data provided by SK Hynix)

[Asia Economy Reporter Changhwan Lee] SK Hynix's performance suffered significantly last year as semiconductor prices plummeted. The company posted a net loss in the fourth quarter of last year amounting to over 100 billion KRW, resulting in worse-than-expected results. However, with the recent likelihood of semiconductor prices rebounding, its performance is expected to improve this year.

On the 31st, SK Hynix announced that its operating profit for last year was 2.7127 trillion KRW, a sharp decline of 87% compared to the previous year. This is the lowest operating profit in seven years since the company posted a loss in 2012. During the same period, sales dropped by 33.3% to 26.9907 trillion KRW.

The sharp decline in memory semiconductor prices dealt a direct blow to operating profits. The fixed price of DRAM, which had risen to the $8 range in September 2018, plunged by more than 60% to $2.8 last year. Since DRAM prices, which account for about 80% of sales, fell sharply, SK Hynix's performance also declined significantly.

The deterioration in performance continued into the fourth quarter. SK Hynix's operating profit in Q4 last year was 236 billion KRW, down 95% from the same period last year, and sales decreased by 30.3% to 6.9271 trillion KRW. Notably, the company recorded a net loss of 118.2 billion KRW, turning from a net profit of 3.3979 trillion KRW in the same period last year to a loss.

Accordingly, the operating profit margin for Q4 last year was 3%, down 4 percentage points from 7% in the previous quarter. The annual operating profit margin for last year was also 10%, a decrease of 42 percentage points from 52% the previous year.

A company official explained, "Profitability was relatively low due to the increased proportion of product lines expanded to respond to rising demand and initial cost burdens from transitioning to new processes." He added, "The decline in the average selling price of DRAM also contributed, along with one-time cost increases and exchange rate factors in Q4, which further reduced profits."

However, this year, DRAM prices are expected to rise due to increased demand from data centers and the spread of 5th generation (5G) mobile communication smartphones, raising expectations for a performance rebound. The NAND flash market is also expected to see increased demand for PC and data center SSDs (solid-state drives). The company forecasts that total DRAM demand will increase by 20% year-on-year, and NAND flash demand will grow by the low 30% range this year.

The financial investment industry also anticipates a rebound in SK Hynix's performance this year. According to FnGuide, a financial information provider, domestic securities firms expect SK Hynix's operating profit to reach the 7 trillion KRW range this year. This outlook is based on limited memory semiconductor supply and increased demand for key products such as server DRAM and PC DRAM, which is expected to drive prices up.

Dongwon Kim, a researcher at KB Securities, emphasized, "With the expansion of 5G and online video services (OTT), server DRAM demand is surging in the U.S., China, and other regions, which could lead to higher selling prices. NAND flash is also expected to enter a phase of significant performance improvement starting in Q2 this year due to increased device integration and limited production capacity causing supply reductions."

An SK Hynix official said, "We view the recently improving demand trends positively," adding, "We plan to rapidly enhance technological maturity during the process transition and accelerate cost reduction through seamless preparation of next-generation products."

Meanwhile, SK Hynix announced a new dividend policy on the same day to increase predictability regarding shareholder returns and to reflect performance volatility due to the cyclical nature of the memory industry. The company will fix the minimum dividend per share at 1,000 KRW and additionally pay 5% of the annual free cash flow. This means maintaining the dividend per share at the 2017 level, a boom period, even if free cash flow decreases.

This content was produced with the assistance of AI translation services.