SK Hynix Riding Semiconductor Boom, Operating Profit Expected to Reach 10 Trillion Won This Year

Recovery of last year's operating profit to 5 trillion won due to COVID-19 untact demand
DRAM prices rising since early year amid supply shortage
NAND market also expected to turn around in second half
Semiconductor big cycle green light... 10 trillion won operating profit consensus for this year

[Asia Economy Reporters Suyeon Woo and Hyunjin Jeong] SK Hynix posted an operating profit exceeding 5 trillion KRW last year, benefiting from the ‘untact (contactless) boom’ caused by COVID-19. With recent DRAM prices rising due to supply shortages and growing expectations for a semiconductor super cycle, there are forecasts that SK Hynix could achieve operating profits in the 10 trillion KRW range this year.

SK Hynix announced that it recorded sales of 31.9004 trillion KRW and an operating profit of 5.0126 trillion KRW last year. Compared to the previous year, these figures represent increases of 18% and 84%, respectively. SK Hynix’s annual operating profit had expanded to 20 trillion KRW during the record semiconductor boom in 2018 but shrank to the 2 trillion KRW level, about one-tenth, in 2019 due to a downturn in the market.

◆ Hynix Enjoys Untact Boom, Rebounds in Performance Within a Year = Despite the global economic downturn caused by COVID-19 last year, SK Hynix achieved a dramatic rebound by recovering operating profits in the 5 trillion KRW range. The surge in demand for untact services led to a sharp increase in sales of PCs, laptops, and tablets, while the full-scale launch of 5G smartphones boosted shipments of DRAM and NAND. This ‘untact boom’ has led securities firms to form a consensus that SK Hynix could reach 10 trillion KRW in operating profit this year.

No Jong-won, Vice President and Chief Financial Officer (CFO) of SK Hynix’s Management Support Division, said, "Despite the COVID-19 pandemic and escalating US-China trade tensions last year, we stably mass-produced key products such as the 10-nanometer 3rd generation DRAM and 128-layer NAND." He added, "In particular, we achieved meaningful performance growth by expanding our market share in the server market." The fourth-quarter results last year showed sales of 7.9662 trillion KRW and operating profit of 965.9 billion KRW, increases of 15% and 298% year-on-year, respectively. Despite unfavorable export conditions due to falling DRAM prices and a stronger Korean won in Q4, SK Hynix actively responded to the surge in mobile demand starting from Q3, driving operating profit growth close to 300%. By product, DRAM shipments increased by 11% quarter-on-quarter, while the average selling price (ASP) fell by 7%. NAND flash shipments rose by 8%, with average prices down 8%.

◆ DRAM Spot Prices ‘Fluctuate’ This Year... Green Light for Semiconductor Big Cycle = Experts have predicted that the semiconductor industry could enter a ‘big cycle’ starting from the first quarter of this year as DRAM prices begin to rebound in earnest. This is due to the intensifying global semiconductor supply shortage and the upward trend in spot prices, which serve as a leading indicator of the DRAM market.

According to DRAMeXchange, as of this date, the DRAM spot price (based on PC DDR 8Gb) is averaging $3.61. This is a 26% increase compared to the fixed price of $2.85 announced at the end of December last year. The DXI index, which reflects the overall semiconductor market conditions, has also turned upward since the end of last year.

SK Hynix expects DRAM demand to grow in the high teens to 20% range this year. Global companies are increasing investments in new data centers, and pent-up demand for 5G smartphones due to COVID-19 is also anticipated to rise. Following the US sanctions on China’s Huawei last year, Chinese mobile companies have rapidly increased their inventory levels, which is favorable for prices. The supply shortage triggered by the power outage at Micron’s Taiwan plant at the end of last year is still ongoing.

However, SK Hynix plans to maintain a conservative capital expenditure policy this year as well. Last year, SK Hynix’s capital expenditure was 9.9 trillion KRW, marking a decline for the third consecutive year. SK Hynix is planning to relocate factories and equipment to China to actively respond to the growing demand for 8-inch foundry semiconductors and will establish a foundation for future growth by fully operating the new M16 plant starting in June this year.

The NAND market is also expected to see a full turnaround starting in the second half of the year. SK Hynix anticipates that the market conditions will improve from the second half as high inventory levels in the first half are resolved, alongside increased adoption of high-capacity products in mobile devices and strong SSD demand. While the company has focused on quantitative growth and technological capability as a latecomer in the NAND market, it now plans to concentrate on securing cost competitiveness and increasing market share.

Vice President No said, "We plan to work hard to achieve a turnaround in the NAND business within this year." He added, "Although there will be temporary cost increases following the acquisition of Intel’s NAND business, we will overcome them in a short period and accelerate profitability improvement."

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