10 Trillion Won Profit Club
Korean chipmaker SK Hynix has posted record profits for two straight quarters from the first quarter this year. Heralding the entry into the 10 trillion won (US$8.95 billion) annual profit club this year, the company is planning to make an aggressive and steady investment in order to continue its sweeping upturn.
SK Hynix announced on July 25 that its consolidated sales in the second quarter reached 6.69 trillion won (US$5.99 billion), while its operating profits and net profits amounted to 3.05 trillion won (US$2.73 billion) and 2.47 trillion won (US$2.21 billion), respectively. The operating margin came to a whopping 45.6 percent, also setting a new record by beating the 40 percent posted in 2004.
The sales increased 69.8 percent from a year earlier, while the operating profits and net profits grew as much as 573.7 percent and 762.7 percent, respectively. The cumulative sales from the first to second quarter rose 70.9 percent compared to the same period a year ago and the cumulative operating profits and net profits jumped a whopping 443.9 percent and 494.9 percent.
As the company’s cumulative operating profits reached 5.52 trillion won (US$4.94 billion) as of the second quarter, SK Hynix is expected to successfully join the 10 trillion won (US$8.95 billion) annual profit club this year unless something major comes up.
This is largely due to the rosy prospects that the demand for memory semiconductor chips on which SK Hynix focuses will continuously rise this year as well. According to market research firm IC Insights, the price of DRAM and NAND flash chips this year will increase 63 percent and 33 percent, respectively, compared to last year.
Another market research firm IHS Markit said through its recent report, “The worldwide memory chip market will expand from US$78.3 billion (87.9 trillion won) last year to US$111.6 billion (125.27 trillion won) this year.”
With the boom, SK Hynix is continuously making an aggressive investment, strengthening the dominance in the market. SK Group Chairman Chey Tae-won announced in August 2015 to invest 46 trillion won (US$41.18 billion) in SK Hynix by 2025 and proceed with the programs accordingly.
The group invested more than 6 trillion won (US$5.37 billion) in the company last year and some 5 trillion won (US$4.48 billion) in the first half of this year alone in terms of Capital expenditure, or CapEx, surpassing the total initial investments.
During a conference call to announce its Q2 performance on the same day, SK Hynix said, “We were planning to make a 7 trillion won (US$6.27 billion) investment in facilities this year but we are now considering raising the investments.”
In addition to continuous and aggressive investments, SK Hynix also plans to increase its plants’ operation rates in order to meet the growing demand. The company has started mass producing 3D NAND flash memories on the second floor its new facility called M14 in May and it has a monthly production capacity of 100,000 units of 300mm wafers.
Moreover, SK Hynix is planning to construct its new DRAM production plant in Wuxi, China, and NAND plant in Cheongju, Korea, but it is considering ways to advance the completion from the first half of 2018 to the fourth quarter of 2018.
SK Hynix is continuously expanding its investment in research and development (R&D), which exceeded 2 trillion won (US$1.79 billion) last year for the first time. As the company is recently seeking to take over the semiconductor unit of troubled Japanese tech giant Toshiba, it shows its will to promote the semiconductor industry as the group’s main growth engine.
SK Hynix currently supplies the prototype of 72-layer 3D NAND flash chip, which was developed in the first quarter for the first time in the industry, boosted by such investments. The company expects that mobile and consumer SSD products based on the chip will contribute to its sales in earnest by the end of this year.
By strengthening its foundry business, SK Hynix also seeks to jump up to be a leading global player in system semiconductor, which is non-memory sector. The company spun off its foundry business division into a separate subsidiary on the 10th and named it “SK Hynix System IC.”
The global foundry market is expected to continuously grow at an annual growth rate of 7.8 percent and reach US$83 billion (92.71 trillion won) in 2021. SK Hynix ranks 27th in the foundry market with a mere 0.2 percent of the share. This is part of the company’s efforts to diversify its business portfolio which is excessively dependent on memory semiconductor chips.
Meanwhile, the M8 plant is the only foundry factory owned by SK Hynix which produces 200mm wafers. It can produce 50,000 units of 200mm wafers a month.