Thursday, December 12, 2019
SK Hynix to Cut Output and Investment in 2020
Q3 Operating Profit Plunges 93%
SK Hynix to Cut Output and Investment in 2020
  • By Kim Eun-jin
  • October 25, 2019, 09:21
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SK Hynix suffered a startling 93 percent drop in operating profit in the third quarter due to falling memory semiconductor prices.

SK Hynix's third-quarter operating profit shrank 93 percent from the same period of 2018 due to falling memory semiconductor prices. It was the lowest operating profit in 13 quarters. SK Hynix has decided to reduce its output and investment in 2020 and review its shareholder return policies in order to make up for the poor performance.

SK Hynix’s operating profit in the third quarter reached 472.6 billion, a 92.7 percent decrease from the same period of 2018 based on consolidated financial statements, SK Hynix said on Oct. 24. Its sales sank by 40.1 percent on year to 6,838.8 billion. Its operating margin plunged to 7 percent, down 50 percentage points from 57 percent in the same period of 2018.

The decline in SK Hynix's earnings is expected to continue at least until the first quarter of next year. Although demand for chips for data centers and mobile devices has been gradually recovering recently, it is hard to say that a rebound has started in earnest, semiconductor industry experts say. DRAM prices are expected to continue to fall in the fourth quarter, and the first quarter of next year is a low demand season. These factors make it hard to expect a turnaround in sales results. Uncertainties such as the U.S.-China trade dispute are still lingering.

SK Hynix announced during a conference call on third-quarter earnings that it will respond to the worsening market environment by reducing both production and investment next year. “We are retooling some of the DRAM production lines at Icheon M10 plant in Korea to produce image sensors and pruning production of 2D NAND flashes,” said Cha Jin-seok, chief financial officer (CEO) of SK Hynix. “Next year, both DRAM and flash production by SK Hynix are expected to fall from this year. We will also significantly cut investment compared to this year. ”

Moreover, SK Hynix will review its shareholder return policy. “We started to pay dividends in 2014 and since then, have increased dividends every year,” Cha said. “However, we are considering complementing our dividend policies as it is difficult to apply the current dividend policies this year.”