SK Hynix Reports 200 Billion KRW Operating Loss Expansion in Q4 Last Year... Q1 Deficit Expected to Widen (Comprehensive)

[Asia Economy Reporter Park Sun-mi] On the 23rd, SK Hynix revised its Q4 operating loss for last year upward by 200 billion KRW to 1.8983 trillion KRW, and with inventory conditions not improving in Q1 this year, the deficit is expected to widen further.

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SK Hynix recorded consolidated sales of 44.6 trillion KRW and operating profit of 6.8 trillion KRW last year. Despite uncertain business environments such as the spread of COVID-19, US-China trade conflicts, ongoing global supply chain instability due to the Russia-Ukraine war, and interest rate hikes to counter inflation, sales increased by 4%. However, operating profit fell by 45% and net profit dropped by 77% as IT demand sharply declined in the second half of the year.

In particular, the operating loss in Q4 last year expanded by about 200 billion KRW from the previously announced 1.7011 trillion KRW to 1.8983 trillion KRW. This was due to delays in negotiations with Intel, the operator of SK Hynix’s Dalian plant in China, regarding factory operation settlements, which delayed reflection in the financial statements. The settlement amount related to factory operations in 2022 is to be decided through negotiations with Intel, but since these negotiations were not completed, it was excluded from the Q4 performance announcement last year. Additionally, some financial statement revisions were made due to other settlement adjustments during the audit process.

The industry expects SK Hynix’s deficit to increase further in Q1 this year because inventory is not decreasing. SK Hynix’s business is entirely semiconductor-based. When semiconductor demand plummets, inventory accumulates, and to compensate, a price drop is inevitable. Last year, SK Hynix’s inventory assets stood at 15.6647 trillion KRW, about 75% higher than 8.95 trillion KRW in 2021. This is an unprecedented level of inventory assets. Accordingly, the inventory valuation loss, which accounts for the loss when inventory value declines, was recorded at around 600 to 700 billion KRW in Q4 last year.

The problem lies in the possibility that inventory assets will increase further in Q1 this year, leading to additional expansion of inventory valuation losses. SK Hynix initially optimistically expected that a sharp drop in memory semiconductor prices in Q1 would not occur, so the inventory valuation loss might decrease compared to Q4 last year. However, the industry anticipates further price declines in memory semiconductors. Taiwanese market research firm TrendForce forecasted that DRAM prices will fall an additional 20% in Q1 and 11% in Q2 this year. NAND flash prices are also expected to drop by 10% and 3% respectively during the same period.

DRAM and NAND flash prices already fell by 23% and 28% respectively in Q4 last year, and this price weakness is expected to continue into the first half of this year. The securities sector also believes that inventory asset size and inventory valuation losses will be difficult to reduce by Q1. Kiwoom Securities analyst Park Yu-ak predicted, "An operating loss of about 3.2 trillion KRW is expected in Q1," adding, "Inventory adjustments by server customers are appearing more significantly than feared, and DRAM bit growth (bit shipment growth rate) is expected to show a 25% decrease compared to the previous quarter, which is lower than expected." Nam Dae-jong, an analyst at Ebest Investment & Securities, also said, "Q1 will still reflect high inventory burdens and seasonal off-season effects," and expressed concern that "additional DRAM price declines could cause inventory valuation losses, expanding the overall deficit."

Meanwhile, Samsung Electronics also disclosed in its recently announced consolidated audit report that as of the end of last year, inventory assets increased by 20.7% to 52.1878 trillion KRW from 41.3844 trillion KRW at the end of 2021. This is the first time Samsung Electronics’ inventory assets have surpassed 50 trillion KRW. By inventory type, finished goods and merchandise inventory reached 16.0322 trillion KRW, up 23.4% from a year earlier, while semi-finished and work-in-progress inventory increased by 32.8% to 20.0775 trillion KRW.

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