SK Hynix, Set to Regain 2 Trillion KRW Operating Profit Amid 'Performance Expectations'

[Asia Economy Reporter Changhwan Lee] As Samsung Electronics announced second-quarter results exceeding expectations due to the strong performance of its semiconductor business, expectations for SK Hynix's earnings improvement have also increased. Inside and outside the company, it is believed that SK Hynix posted an operating profit ranging from the high 1 trillion won level to up to 2 trillion won in the second quarter.

According to the semiconductor industry on the 9th, SK Hynix will announce its second-quarter earnings on the 23rd. The financial investment industry's consensus forecast for the second quarter is sales of 8.249 trillion won and operating profit of 1.72 trillion won. This represents a 28% increase in sales and a 170% surge in operating profit compared to the same period last year. It is the highest performance in six quarters since the fourth quarter of 2018.

Some in the market predict that SK Hynix, like Samsung Electronics which posted results exceeding consensus, could achieve an operating profit exceeding 2 trillion won in the second quarter. In particular, depending on the reversal of inventory asset valuation reserves amounting to 464.2 billion won accumulated at the end of the first quarter, operating profit exceeding 2 trillion won is also possible. Quarterly operating profit in the 2 trillion won range would be the first since the fourth quarter of 2018.

The significant improvement in performance is also attributed to the increased semiconductor demand driven by the expansion of non-face-to-face (untact) demand due to the novel coronavirus disease (COVID-19). The rise in fixed prices of key memory semiconductor products such as DRAM and NAND flash in the second quarter due to increased semiconductor demand had a major impact.

In particular, the NAND flash business, which had a large deficit, is reported to have significantly reduced losses thanks to strong demand for SSDs (solid-state drives) and cost reduction efforts. SSDs are data storage devices made with NAND flash and are used in servers, PCs, and gaming consoles.

SK Hynix reduced production of some products last year due to falling NAND flash prices and market contraction. However, in the first half of this year, thanks to the expansion of untact demand and 5G (fifth-generation) mobile communications, sales of server SSDs have greatly increased, and the NAND business is considered to have entered a recovery phase.

It is estimated that SK Hynix's NAND flash business operating profit margin in the second quarter improved significantly to around -4% compared to -20% in the previous quarter. Overall SSD demand is expected to increase significantly this year, raising expectations for a return to profitability in the second half.

Market research firm Omdia forecasts that the global SSD market size will grow 41% to $32.6 billion this year, with the consumer SSD market expanding 54% to $16.1 billion.

Researcher Jongwoo Yoo of Korea Investment & Securities said, "SK Hynix's NAND flash bit growth (production increase rate) in the second quarter is expected to be 10% compared to the previous quarter," adding, "NAND flash profitability improvement will continue in the third quarter, and the business will return to profitability for the first time in two years."

A semiconductor industry official said, "I understand that SK Hynix's semiconductor business performed better than expected in the second quarter," adding, "Both DRAM and NAND flash results improved significantly."

However, there is a possibility that the recent upward trend in memory semiconductor prices will slow down and continue throughout the second half of the year, which may lead to a slight decrease in operating profit in the second half compared to the second quarter.

Researcher Seungwoo Lee of Eugene Investment & Securities said, "Considering the recent uncertain economic situation and the DRAM spot prices that have been declining for three consecutive months, the memory semiconductor price outlook for the second half is somewhat conservative," adding, "Operating profit in the second half is expected to slightly slow down."