SK hynix posted the largest profit in the third quarter on the back of brisk sales and higher chip prices, the company said, Tuesday.
In a regulatory filing to the Korea Exchange, the Icheon-based SK hynix posted 4.08 trillion won in revenue during the July-September period. Operating profit reached 1.16 trillion won, a major turnaround from 24.02 billion won loss, year-on-year. Net profit during the latest quarter was 958 billion won.
It also stunned the industry by clinching a 29 percent operating profit margin, comfortably beating the market leader Samsung Electronics.
"The good performance was due to strong memory chip prices and increased shipments for NAND flash memory chips thanks to releases of NAND-embedded devices. An improvement of production yields for our high-end memory chips and stable migration into thinner chip-making technologies also paid off," said the company in a statement.
Average selling price (ASP), a key barometer to gauge the profitability of chipmakers, shows that SK hynix's DRAM memory chips increased 5 percent during the quarter from a quarter earlier.
The ASP for NAND flash chips decreased by 6 percent during the period; however, an increased shipment for the flash chips limited the effects of the weak NAND prices, said the company.
"SK hynix will increase the portion of mobile DRAM chips to 40 percent by the end of next year from this year's estimated 30 percent. They are more profitable than conventional memory chips and will be used in premium smartphones and tablets," said Kim Joon-ho, the head of its corporate center, during a conference call with investors and analysts.
The executive said it's unlikely that the chipmaker will pay dividends to shareholders despite stronger earnings. "That's mostly due to the heavy net debt ratio that we should cut."
As of the end of the third quarter, total borrowing was over 5 trillion won, according to the executive.
SK hynix, which is one of the few survivors in the industry, along with Samsung and Micron Technology of the United States, admitted that full operations of its Wuxi plant will be delayed, although the company is in the process of restoring operations.
The Chinese plant accounted for 15 percent of global computer memory chips before last month's sudden blaze.
Answering a question about the timing of the mass-production of advanced smartphones using the ultra-fast 64-bit processing chips, it said the market will be opening after 2015.
"Developing a system for chips using 64-bit processors to expand the storage capacity to 4GB is necessary. Because applications and operating systems need to be developed first, devices using 64-bit processors will be rolled out to the market after 2015," SK hynix said.
Apple's latest iPhones are using the 64-bit processors and the world's biggest smartphone maker Samsung later confirmed it is also in the process of developing the faster chips to be used in its next devices.
"In the short term, the one-month potential delay to December for full wafer starts at Wuxi, depending on the timing of the delivery of equipment, is incrementally positive for both DRAM and NAND as SK hynix is using NAND equipment to support DRAM production," said Sanford C. Bernstein senior analyst of Mark Newman, in a note to clients after the earnings was published.
"SK hynix's comments about NAND and DRAM industry supply bit growth being slightly lower next year versus this year due to slowing shrink are very positive for the economics of industry," the analyst said.
SK Telecom, the nation's top mobile carrier and the biggest shareholder of SK hynix, also benefited heavily from the chip affiliate. SK Telecom said its net profit during the latest quarter was 500 billion won.
"Record quarterly profit by SK hynix also lifted our net profit by 7.4 percent from a quarter earlier," SK Telecom said. Revenue was 4.12 trillion won during the quarter, while operating profit was 551 billion won.
By the third quarter, the number of SK Telecom's long-term evolution (LTE) subscribers marked 12.27 million, taking up over 45 percent of the company's total mobile subscriber base.