Financial Stability Deteriorating
SK Hynix is planning to be rather conservative in investment this year as the spread of COVID-19 is leading to a decline in demand and its financial stability is deteriorating.
The company’s net cash, that is, the difference between its cash and cash-equivalent assets and borrowings fell below zero last year. Specifically, its cash and cash-equivalent assets totaled 3,994.7 billion won and its borrowings amounted to 10,523.5 billion won last year. For reference, its net cash was 4,383.3 billion won and 3,087.4 billion won in 2017 and 2018, respectively.
When it comes to the borrowings, those from financial institutions soared 129 percent to 7,468.3 billion won and corporate bonds jumped 56 percent to 3,055.1 billion won. The borrowings amount to 11,724.3 billion won when lease liabilities are included in the calculation and the company’s annual interest burden is estimated at 329.4 billion won, more than twice the figure of the previous year.
In the meantime, the sales of SK Hynix dropped 33 percent to 26,990.7 billion won and its operating profit plunged 87 percent to 2,712.7 billion won last year, the lowest figures in seven years. This is because the price of DRAM chips, which account for 75 percent of the sales, dropped more than 60 percent last year.
The company is continuing to increase its borrowings for production process conversion and facility expansion. For example, it issued corporate bonds worth 1.06 trillion won in February. This is because semiconductor manufacturers, by nature, require consistent investment. SK Hynix invested 10.3 trillion won in 2017, 17 trillion won in 2018, and 12.7 trillion won in 2019. The investment-to-sales ratio of the company rose from 34 percent to 42 percent and then to 47 percent in those years.
In addition, its sales structure worsened last year. For instance, its cost of sales increased 24 percent to 18,825.2 billion won whereas its sales fell 33 percent. Its material and depreciation costs increased 33 percent and 30 percent to lead to the increase in sales cost. Besides, its inventory assets increased from 4,422.7 billion won to 5,295.8 billion won.