SK hynix on solid growth track

By Kim Yoo-chul

SK hynix CEO Park Sung-wook

SK hynix, the world’s No. 2 computer memory chip maker, said Thursday it has returned to making profit in the second quarter from a year earlier on the back of rising chip prices.

Its net profit reached 946 billion won ($846 million) in the April-June period, reversing from a loss of 53.3 billion won the previous year.

Its revenue reached 3.9 trillion won and operating profit was a stunning 1.1 trillion won.

“Chip prices remained healthy and all market conditions were favorable for us. Smoother technological transition and improved production yields also paid off,” company spokeswoman Park Seong-ae said.

The SK Group’s semiconductor affiliate, which supplies chips to Apple, has gained additional momentum in profit growth in the second quarter thanks to orders from Samsung, which is experiencing a shortage of conventional computer chips amid its big shift toward profitable mobile DRAMs.

SK hynix recently signed a cross-licensing deal with Samsung. Under the agreement, Samsung can buy chips from SK hynix, while SK hynix can fully access Samsung’s chip patents.

Impressed by such brilliant performance, the company plans to significantly cut its cash-borrowings, meaning its financial soundness is going to improve throughout this year.

“We can maintain a total cash-borrowing between 2 trillion won and 3 trillion won, which we believe is manageable, if situations go smoothly throughout this year,” said Kim Joon-ho, the head of the firm’s corporate center, during a conference call to institutional investors and analysts after announcing its quarterly earnings.

As of the end of the second quarter, the company has 6.2 trillion won as borrowing, it said.

Consolidation and slowing technology migration is leading to significantly slowed supply growth. This trend is leading to undersupply and improved pricing, which is impacting mobile DRAM prices.

Following decades of value destruction, bankruptcies and exits, the dynamic random access memory (DRAM) industry is poised to emerge into a low-growth pace but is regarded as being highly concentrated, rational and value-creating.

SK hynix is one of the few survivors from the years-long “game of chicken.”

Based on such confidence, SK hynix plans to boost its spending on solutions that can use flash-type memory chips because the low exposure in flash chips compared to stronger DRAM chips has so far been the biggest headache for the chipmaker.

“SK hynix is in the process of shifting our M12 assembly line at our factory in Cheongju to only produce flash memory chips. The transition will bring us to expand the production capacity and save costs,” Kim said.

He vowed to report visible results in solid-state drives (SSD) solutions, which is the next-generation storage devices using flash chips as the base.

The firm stressed it’s been on track to develop advanced chip-making technologies ahead of its competitors.

“We’ve completed the development of chips using a very-finer 10-nanometer processing technology. The new technology will be used on products which will roll out from the latter half of this year,” Kim said.

It also plans to start the mass-production of three-dimensional flash chips from next year, at the earliest.

SK hynix invested 1.5 trillion won into facilities in the first half of this year. Kim told investors that this year’s investment will reach some 3 trillion won.