SK hynix achieved a remarkable milestone with quarterly revenue surpassing 100 trillion KRW (about 75 billion USD) and an operating margin of 80%. This unprecedented success is attributed to the company’s strategic investments in artificial intelligence (AI) technology. The surge in demand extends beyond high-bandwidth memory (HBM) to encompass server dynamic random access memory (DRAM) and enterprise solid-state drives (eSSD), coupled with rising memory prices.
In a bold move, SK hynix unveiled a shareholder return plan worth approximately 100 trillion KRW (about 75 billion USD), underscoring its commitment to sharing the fruits of its success with investors. This decision reflects the company’s robust financial performance, driven by escalating memory prices and increased sales of high-value products. Simultaneously, the company announced plans to accelerate its factory construction timeline and ramp up investments to enhance production capacity.
On Wednesday, SK hynix released its third-quarter financial results, reporting consolidated revenue of 104.6155 trillion KRW (about 78.3 billion USD) and operating profit of 83.3334 trillion KRW (about 62.4 billion USD). These figures represent impressive quarter-on-quarter increases of 32% and 38% respectively, both surpassing market consensus. Year-over-year, the company posted staggering growth rates of 328% in revenue and 632% in operating profit. Notably, operating profit hit a record high for the sixth consecutive quarter.
The operating margin climbed to an impressive 79.7%, up 3.4 percentage points from the previous quarter’s 76.3%. This quarter marked a historic first as revenue breached the 100 trillion KRW (about 75 billion USD) threshold, with both operating profit and operating margin reaching unprecedented levels.
Server DDR5 sales skyrocket by over 40%, fueling DRAM price surge
SK hynix’s third-quarter performance reaffirms that the AI memory boom has expanded beyond HBM, permeating the broader DRAM and NAND flash markets.
DRAM bit shipments rose by approximately 10% compared to the previous quarter, while the average selling price (ASP) saw a substantial increase in the high 20% range. This simultaneous uptick in both sales volume and prices significantly bolstered revenue.
A standout performer was server DDR5, with sales volumes surging by over 40% quarter-on-quarter. This growth is attributed to increased investments in AI servers and heightened demand for high-performance server memory.
During the earnings call, SK hynix Chief Financial Officer (CFO) Kim Woo-hyun highlighted that the robust pricing of general DRAM, coupled with an increasing share of higher-priced HBM4 sales, contributed to a sustained high ASP increase of around 20% compared to the previous quarter.
The NAND flash segment also benefited from significant price appreciation. Despite a slight dip in bit shipments compared to the previous quarter, ASP rose impressively in the mid-20% range. The strategic shift towards high-value products, such as enterprise SSDs, played a crucial role in this performance.
The upward trajectory in memory prices is primarily driven by supply constraints. While demand for memory has soared due to increased investments in AI data centers, semiconductor manufacturers face challenges in rapidly scaling up production. This imbalance between surging demand and limited supply continues to fuel price increases.
Revenue Soars 32% While Costs Inch Up 12%, Propelling Profitability to New Heights
The surge in selling prices directly translated into improved profitability. As revenue climbed by 25.2960 trillion KRW (about 18.9 billion USD), operating profit saw a corresponding increase of 22.7910 trillion KRW (about 17 billion USD). This means that approximately 90% of the revenue growth converted into higher operating profit.
In the third quarter, SK hynix’s revenue jumped 32% quarter-on-quarter, while cost of sales rose by a modest 12% and selling and administrative expenses increased by 16%. The substantial rise in memory prices and increased sales of high-margin products outpaced cost increases, driving profitability.
Consequently, gross profit – calculated by subtracting production costs from revenue – reached 89.6530 trillion KRW (about 67.1 billion USD), marking a 36% increase from the previous quarter. The gross profit margin also improved significantly, rising to 85.7%, an increase of approximately 2.5 percentage points.
Despite headwinds from unfavorable exchange rates due to the strengthening Korean won, which typically impacts export performance, operating profit surged by 38%. This underscores the significant impact of rising memory prices and expanded sales of high-value products on the company’s bottom line.
The growth in AI server memory sales further bolstered performance. Expanded sales across HBM, server DDR5, and enterprise solid-state drives (eSSD) contributed to enhanced profitability.
However, despite the substantial increase in operating profit, net profit declined. The third-quarter net profit stood at 39.7800 trillion KRW (about 29.8 billion USD), down 58% from the previous quarter. SK hynix attributed this decrease to foreign exchange losses of 11.6300 trillion KRW (about 8.7 billion USD), resulting from currency fluctuations, and investment asset valuation losses of 22.9200 trillion KRW (about 17.2 billion USD).
An SK hynix spokesperson stated that leveraging the favorable market conditions, it’s accelerating the production capacity expansion and strengthening the product competitiveness to maintain the growth trajectory. It’s committed to further increasing the revenue and profit in the coming year.