[SK Rebalancing Midterm Review] Profit Concentration at 75% Dependence on SK Hynix After Earnings Rebound

Heavy Reliance on Semiconductors Raises Need for Earnings Diversification
'Trump Risk' Emerges Amid AI-Centric Restructuring

Editor's NoteLast year, SK declared a transition toward future industries, initiating an intensive business restructuring and rebalancing. Now, one year later, the group faces major challenges such as heightened global economic uncertainty and the strengthening of protectionism. Asia Economy examines whether SK Group's strategy remains effective amid rapidly changing international risks and reviews the group's future direction for achieving sustainable growth.

The core keyword of the rebalancing led by SK Group Chairman Chey Tae-won is "artificial intelligence (AI)." By centering investments and organizational capabilities around AI, the group is rapidly shifting its structure from the traditional "Bio·Battery·Chip" (Bio·Battery·Semiconductor) to "AI·Battery·Chip," or from "BBC" to "ABC." In particular, as the rebalancing process unfolds, the stagnation in electric vehicle growth and the boom in AI-related industries have significantly increased SK Group's dependence on semiconductors. As the group is exposed to tariff risks triggered by U.S. President Donald Trump, uncertainty has also grown.

On November 4 last year, Chey Tae-won, chairman of SK Group, delivered the opening speech at the SK AI Summit held at COEX in Seoul. Photo by Huh Younghan

SK Hynix Dependence at 75%... Warning Signs of Earnings Volatility

Due to rebalancing and market changes, SK Group has become excessively dependent on semiconductors?especially SK Hynix?for its profits. According to the SK Brochure released on April 25, profit concentration has intensified since SK Hynix's performance rebounded in 2024. SK Hynix recorded an operating profit of 23.4 trillion won last year. Considering the group's total operating profit of 31 trillion won, SK Hynix accounted for 75.5% of the group's profits. This means that out of every 100 won in profit, more than 75 won was generated by SK Hynix alone. This is a sharp increase compared to the 40% share in 2022. In the first quarter of this year, SK Hynix again posted a record-high operating profit of 7.4405 trillion won.

This has raised concerns that the overall stability of the group's earnings could be undermined. When SK Hynix posted a loss of about 7.7 trillion won in 2023, the group as a whole recorded a loss of 2.9 trillion won. A structure in which the group's profits fluctuate in line with the semiconductor cycle could become a risk in the medium to long term. A capital market expert commented, "While it is attractive for SK Hynix to serve as a 'cash cow' during tough economic times like these, competition in the semiconductor sector is intensifying, so there is a need to diversify the profit structure."

In particular, tariff uncertainties following the launch of a second Trump administration could also impact SK Group's rebalancing efforts. Recently, the U.S. government imposed restrictions on domestic company Nvidia's exports of AI chips to China, and since SK Hynix counts Nvidia as a major customer, the company is likely to be directly affected. An industry insider said, "SK Hynix supplies high-bandwidth memory (HBM) to Nvidia almost exclusively. If Nvidia's demand for HBM decreases, SK Hynix will inevitably be affected."

Debt Reduction Unavoidable for Now... Credit Rating Improvement Remains a Challenge 

These concerns are closely related to the group's growing overall financial burden. According to securities industry analysis, SK Group's debt, which stood at around 100 trillion won in 2020, exceeded 170 trillion won in 2023. Among its subsidiaries, SK Energy and SK Incheon Petrochem both had debt ratios exceeding 300% last year. Even compared to companies with similar business structures, such as S-Oil (181%) and Hanwha TotalEnergies (117%), SK Group's debt ratio is relatively high. In its "Credit Direction" report released last month, Yuanta Securities noted, "Given the remaining investment burden, a meaningful reduction in borrowing will be difficult for the time being," adding, "As financial stability declines, credit risk has increased."

Accordingly, SK Group is expected to focus its capabilities on bringing AI and batteries onto a stable track during the HBM boom. Creating a stable profit structure is essential for long-term growth. SK On, the group's core battery business, has been reducing its investment proportion, but large-scale additional capital injections remain inevitable. Last year, battery-related facility investments amounted to 7.5 trillion won, and this year, 3.5 trillion won will be invested. The company has also stated that its initial IPO target of 2026 may be postponed to "no later than before 2028." SK Innovation plans to offset battery division losses with profits from its refining business. However, concerns remain that, with the recovery of refining margins delayed, there are limits to defending overall group profits.

Hyukwook Chu, CEO of SK Innovation E&S (from the left), Sangkyu Park, CEO of SK Innovation, and Seokhee Lee, CEO of SK On, are communicating with shareholders about management issues at the 'Dialogue with Shareholders' held on the 28th of last month at the SUPEX Hall in SK Seorin Building, Jongno-gu, Seoul. Photo by Yonhap News