SK Hynix Q3 Profit Nears 1.3 Trillion Won Driven by 'Huawei Special' (Comprehensive)

SK Hynix Q3 Operating Profit 1.2996 Trillion KRW, Up 175% YoY
Increased Huawei Orders Ahead of US Sanctions + Growing Demand for Mobile and Gaming Semiconductors

[Asia Economy Reporter Changhwan Lee] Despite the decline in semiconductor prices in the third quarter, SK Hynix's performance exceeded expectations thanks to Huawei temporarily increasing orders significantly to secure inventory following additional U.S. sanctions in September that made semiconductor purchases difficult. The spread of COVID-19 also contributed to strong sales, particularly in mobile and graphic semiconductors.

SK Hynix announced on the 4th that its third-quarter operating profit was 1.2996 trillion KRW, surpassing the market consensus of 1.25 trillion KRW. This represents an outstanding performance with a 175% increase compared to the previous year. Revenue also exceeded expectations at 8.1287 trillion KRW, surpassing the forecast of 7.8 trillion KRW.

The memory semiconductor market in the third quarter showed weakness due to decreased semiconductor demand caused by increased inventory among major server customers. According to DRAMeXchange, server DRAM prices fell by about 15% in the third quarter. PC DRAM prices remained stable.

An important factor behind the improved performance despite falling semiconductor prices was the Huawei effect. According to the semiconductor industry, from mid-August to mid-September?just before the U.S. sanctions began?Huawei focused on purchasing DRAM and NAND flash from major memory semiconductor companies, including SK Hynix, to stockpile semiconductors used in key products such as servers, smartphones, and communication equipment.

Huawei is a major customer accounting for 11% of SK Hynix's sales, and during this period, it is understood to have purchased a larger quantity of semiconductors at prices higher than usual.

Jihye Moon, a researcher at Shin Young Securities, explained, "We understand that during August and September, when Huawei concentrated its memory semiconductor purchases due to U.S. sanctions, prices were somewhat higher than usual. Moreover, through Huawei's sales, SK Hynix was able to adjust its server DRAM inventory, which positively impacted overall performance."

Lee Seok-hee, CEO of SK Hynix

The increase in IT device demand due to the spread of COVID-19 was also positive. In particular, smartphone sales surged significantly in the third quarter due to pent-up demand, and the popularity of game consoles greatly boosted solid-state drive (SSD) sales. According to market research firm Counterpoint Research, the global smartphone market grew by 32% quarter-over-quarter in shipments during the third quarter.

Mobile demand is expected to remain strong in the fourth quarter, and overall semiconductor market conditions are projected to improve. Although Huawei's market share in the smartphone sector is declining, other smartphone companies such as Apple, Oppo, and Vivo are filling the gap.

It is also positive that major U.S. server customers such as Amazon, Microsoft, Google, and Facebook are depleting their inventories and increasing server orders. There are forecasts that the decline in server DRAM prices, which had led the semiconductor market downturn, will come to a halt.

Sales related to Intel's NAND business acquisition are also expected to increase significantly. SK Hynix is confident that it will grow NAND sales to more than three times the pre-acquisition level within five years following the acquisition of Intel's NAND division.

According to Omdia, SK Hynix's NAND sales last year were approximately 5.2 trillion KRW, while Samsung Electronics' sales were 18.8 trillion KRW. SK Hynix's goal is to grow its NAND business to the level of Samsung Electronics, currently the number one, within five years.

Regarding concerns about raising the $9 billion acquisition price for Intel's NAND business, SK Hynix CEO Seok-hee Lee stated, "We will pay $7 billion in cash at the first closing scheduled for the end of next year. About half of this will come from cash and cash equivalents on hand and future operating cash flow, and the remainder will be financed through borrowing or other external funding, with asset securitization options also being considered if necessary."

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