SK Hynix Facing Inventory Build-up

Demand Slowdown and Semiconductor Market Recession
Last Year's Inventory Assets 5.943 Trillion Won

[Asia Economy Reporter Dongwoo Lee] SK Hynix's inventory assets are rapidly increasing. This is largely due to the global semiconductor market suffering a downturn last year amid weakened demand from global customers.

According to the audit report submitted by SK Hynix to the Financial Supervisory Service on the 4th, the company's inventory assets last year amounted to 5.943 trillion KRW, a 23.8% increase compared to the previous year (4.8 trillion KRW). This figure is more than double the total inventory assets in 2016 (2.8225 trillion KRW) and 2017 (2.09 trillion KRW).

Most of SK Hynix's inventory assets consist of finished products and work-in-progress (WIP). Last year, finished product inventory assets were 1.2535 trillion KRW, slightly down from 1.5321 trillion KRW the previous year. In contrast, WIP increased by 45.4% to 3.3838 trillion KRW from 2.3271 trillion KRW the previous year. WIP refers to items currently being manufactured or processed that are ready for immediate sale.

The problem is that as saleable products accumulate, the scale of valuation losses for maintenance costs is also expanding significantly. Last year, the total valuation loss on inventory assets was 647.5 billion KRW, a steep 71.2% increase compared to the previous year. Losses amounted to 195.1 billion KRW for finished products and 395 billion KRW for WIP. If finished products are not sold in a timely manner, loss costs are expected to increase further.

SK Hynix analyzed, "The profitability of product groups whose production ratios were expanded to respond to increased demand last year was low, and inventory assets increased due to the slowdown in semiconductor demand caused by the expansion of global economic uncertainties such as the US-China trade conflict."

Some express concerns about liquidity tightening due to the increase in inventory assets. SK Hynix's borrowings last year were 10.5235 trillion KRW, a 99.2% increase compared to the previous year (5.2819 trillion KRW). The borrowing ratio rose by 11 percentage points from the previous year to 22%.

An SK Hynix official stated, "In 2018, we recorded an operating profit of 20 trillion KRW and significantly increased investment in the construction of the M16 plant in Icheon, Gyeonggi Province, but last year's operating profit dropped to around 2 trillion KRW, resulting in some inability to repay borrowings," adding, "However, it is not at a level that raises concerns about liquidity tightening."

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