South Korea’s SK Hynix: A Year of Record Profit Amidst Growing Challenges

It was revealed through company forecasts that SK Hynix, one of South Korea’s leading semiconductor manufacturers, anticipated its sales of advanced semiconductors, which are integral to generative artificial intelligence (AI) chipsets, would more than double in the current year. This projection followed a quarterly profit record that reportedly surpassed the performance estimates of its rival, Samsung. Despite this success, a decline in SK Hynix’s shares by as much as 4.7% occurred after warnings were issued about sharper demand drops in commodity memory chips used in smartphones and computers, largely attributed to the intensifying competition from Chinese firms. The shares, however, recovered later to show only a marginal decrease of 0.2% by midday.

Analysts observed that investors had expressed dissatisfaction with the company’s plans for factory investments in high-bandwidth memory (HBM) chips. Before these announcements, the shares of SK Hynix had reportedly risen by approximately 30% this year, driven by optimism surrounding its business engagements with AI chip giant Nvidia. This performance was noted to have significantly outpaced the share growth of Samsung, whose stock had only risen by 2% during the same period. 

The memory chip market’s uncertainties were emphasized by SK Hynix’s Chief Financial Officer, Kim Woo-hyun, during an earnings call. It was reportedly stated that trade protectionism and geopolitical risks continued to deepen, while companies producing PCs and smartphones were making adjustments to their inventories. Supply constraints for high-performance chips were highlighted as a key issue due to increasing demand, whereas it was expected that demand declines for legacy products would accelerate.

It was noted by Lee Min-hee, an analyst at BNK Investment & Securities, that although the company’s fourth-quarter results had been robust, its forecast for first-quarter chip shipments appeared weaker than anticipated. Lee reportedly revised his prediction for SK Hynix’s first-quarter operating profit downward from just over 6 trillion won to approximately 5.5 trillion won. The company disclosed that its shipments of DRAM and NAND flash memory chips were expected to drop by 10% to 20% in the first quarter compared to the previous quarter.

SK Hynix, recognized as the world’s second-largest memory chipmaker, was reported to have achieved an operating profit of 8.1 trillion won ($5.64 billion) for the October-December quarter. This performance was slightly above market expectations and exceeded the estimated operating profit of 6.5 trillion won for Samsung during the same period. Analysts observed that, if validated, this would mark the first instance in which SK Hynix’s quarterly operating profit surpassed Samsung’s total operating profit. The rival company was noted to have lagged behind in supplying high-end HBM chips to Nvidia.

SK Hynix reportedly stated that HBM chips accounted for 40% of its total DRAM revenue in the fourth quarter. Its overall revenue for the period was said to have increased by 75% compared to the previous year, reaching 19.8 trillion won, while its operating profit experienced an over 20-fold rise from the same period a year earlier. This dramatic growth was attributed to the company recovering from one of the most significant downturns in the chip industry in over a decade.

The company’s modest capital expenditure plan for HBM chips this year was highlighted as a key point of concern for investors. Despite its substantial achievements, it was recognized that challenges remained, particularly regarding the fluctuating dynamics of the global semiconductor market and the competitive pressures posed by rival firms.