SK Hynix Posts Record 76% Operating Margin, Outpacing TSMC for Third Consecutive Quarter

SK Hynix has continued to maintain the highest level of profitability in the semiconductor industry, posting an operating margin of 76% in the second quarter of this year, which surpasses that of Taiwan's TSMC, the world's largest foundry (semiconductor contract manufacturing) company.

Analysts suggest that the AI memory supercycle is prolonging as prices for conventional DRAM and NAND flash surge significantly, following high-bandwidth memory (HBM).

SK Hynix announced in a regulatory filing today (the 29th) that it recorded 79.3187 trillion won in revenue and 60.5426 trillion won in operating profit for the second quarter of this year.

The operating margin rose 4 percentage points from the previous quarter's 72% to 76%, once again breaking its all-time record.

This means that for every 10,000 won worth of products sold, about 7,600 won was left as profit, a level described as rare to find in manufacturing.

In particular, for three consecutive quarters starting from the fourth quarter of last year, it has outperformed TSMC, the top foundry boasting the highest profitability in the semiconductor industry, in terms of operating margin.

TSMC's operating margin for the second quarter of this year stood at 60.3%, maintaining a gap of around 15 percentage points between the two companies. Previously, SK Hynix's operating margin had plummeted to around minus (-) 67% in the first quarter of 2023, but after turning a profit at 3% in the fourth quarter of the same year, it has been on an upward trajectory every quarter.

This favorable performance is interpreted as the combined effect of expanded HBM sales and rising prices for conventional DRAM and NAND.

The industry notes that the memory supply shortage is persisting as the AI memory market reorganizes around long-term supply agreements (LTAs).

As major companies concentrated their production capacity on HBM and expanded LTAs with U.S. Big Tech, the supply of conventional memory also became limited.

Consequently, analysts analyze that price increases led to improved profitability.

An increase in demand for enterprise solid-state drives (eSSDs) driven by North American cloud service providers' (CSPs) expanded investments in AI data centers also lent support.

According to market research firm TrendForce, contract prices for conventional DRAM and NAND in the second quarter rose 58 to 63 percent and 55 to 60 percent, respectively, compared to the previous quarter, forming a "supplier-favored" market.

In addition, as the margin of conventional DRAM rose to a level exceeding that of HBM, profitability was maximized.

It is known that HBM accounts for about 30% of SK Hynix's total DRAM shipments, with conventional products making up the rest.

Conventional DRAM generally encompasses everything from the latest products such as DDR5, LPDDR5X, and GDDR7 to older products like DDR4, essentially referring to the remaining DRAM excluding HBM.

Furthermore, since Samsung Electronics, which announced its preliminary earnings early this month, is also estimated to have recorded an profit margin of over 60% in its memory division, South Korea's two memory giants are evaluated to be side by side continuing a super-high profitability trend.

The financial structure has also improved further.

Following the expansion of its net cash scale (a state where cash and cash equivalents exceed borrowings) to 35 trillion won at the end of the first quarter of this year, SK Hynix further expanded its investment capacity in the second quarter based on its cash-generating ability.

Cash and cash equivalents at the end of the second quarter of this year were approximately 88 trillion won, an increase of more than 33 trillion won from the end of the previous quarter (54.3 trillion won).

On the other hand, the scale of borrowings decreased.

During the same period, borrowings decreased by about 700 billion won to record 18.6 trillion won.

As a result, net cash of 69.4 trillion won was achieved.

SK Hynix had previously achieved net cash in the third quarter of last year for the first time since entering a net debt state in the second quarter of 2019.

As of the end of last year, SK Hynix's net cash level was around 12.7 trillion won.

The company plans to inject the secured financial resources into the Yongin Semiconductor Cluster, the ramp-up of the Cheongju M15X fab, the packaging plant P&T7, the NAND production base M17, and the expansion of next-generation HBM production capacity.
※ Please note: This article was translated by AI and may contain errors.