SK Hynix Achieves 'Record' Sales and Raises Dividends Last Year (Comprehensive)

"DRAM Market Demand Growth Rate Expected to Be in the High Teens This Year"

[Image source=Yonhap News]

[Asia Economy Reporters Sunmi Park, Hyeyoung Lee] Despite uncertainties in the semiconductor market environment such as supply chain disruptions, SK Hynix's record-high sales last year were largely due to securing quality competitiveness focused on high value-added products in the DRAM business, which accounts for about 70% of sales, and flexibly responding to demand.

On the 28th, SK Hynix reported that it greatly benefited from the increased non-face-to-face IT demand caused by the spread of COVID-19 last year. SK Hynix President Noh Jong-won said during the earnings conference call, "The DRAM business actively expanded sales to PCs, graphics, and Greater China mobile markets, where non-face-to-face demand remained strong last year, maintaining the No. 1 market share among major server customers based on superior quality competitiveness. In addition, we secured industry-leading quality competitiveness for next-generation strategic products such as DDR5 and HBM3, which saw increased demand."

HBM is a high value-added, high-performance product that dramatically improves data processing speed compared to existing DRAM. SK Hynix is the industry leader, having developed HBM3 for the first time in the industry. Furthermore, after launching DDR5 DRAM for the first time in the industry in October 2020, SK Hynix solidified its technological leadership in the DDR5 field by introducing the largest capacity product within just one year and two months.

In the NAND business, which turned profitable in the third quarter last year, the competitiveness of 128-layer products contributed to an annual shipment growth of over 60%, also impacting the achievement of record sales. By recording a sales growth rate significantly exceeding the market average, the NAND business posted a profit on an annual basis. President Noh explained, "The sales proportion of 128-layer products reached 80%, achieving a double-digit cost reduction rate."

SK Hynix expects that supply chain issues, the most important variable in the demand environment this year, will continue until the first half of this year but will gradually ease in the second half, leading to increased market demand for memory products. Accordingly, the DRAM business plans to continue a strategy focused on profitability while flexibly managing inventory to reduce market volatility. The limited decline in DRAM prices compared to expectations and the earlier-than-expected rebound are also positive signs. The spot price of PC DRAM, which can proactively reflect DRAM market conditions, turned upward in the second half of last year and has been trading around $3.7 this month, raising expectations for market improvement.

Regarding the NAND business, SK Hynix plans to continuously pursue scale growth. With the completion of the first phase of Intel's NAND business acquisition at the end of last year, the launch of the U.S. subsidiary Solidigm's SSD (storage device) business is expected to nearly double sales compared to last year. President Noh stated, "We expect DRAM demand growth to be in the high teens percentage-wise and NAND flash demand growth to be 30%. We plan to increase DRAM production in line with market growth rates and shipments of NAND to exceed demand growth rates."

Accordingly, SK Hynix plans to actively expand investments. Considering the purchase of the Yongin site and the costs of establishing R&D facilities in the U.S., the company intends to increase infrastructure investments this year. However, the scale of equipment investment is expected to be similar to last year. SK Hynix will also conduct large-scale recruitment within the first quarter. To prepare for future growth engines such as the Yongin semiconductor cluster construction, the launch of the U.S. NAND subsidiary Solidigm, and the full operation of the Icheon M16 fab, the company plans to expand hiring compared to previous years.

Meanwhile, SK Hynix also decided on a dividend of 1,540 KRW per share. The total dividend payment amounts to 1.0589 trillion KRW. SK Hynix plans to allocate about 50% of the free cash flow generated over the three years from this year through 2024 as shareholder return funds. The annual cash dividend formula remains the same, paying a fixed dividend plus 5% of the annual free cash flow as an additional dividend, but the fixed dividend has been raised by 20% from 1,000 KRW per share to 1,200 KRW per share.