SK hynix reports earnings surprise in Q3 on AI chip boom

SK hynix, the world’s second-largest memory chip maker by revenue, said Thursday it logged all-time high profit, sales and net income in the July-September period this year, riding on the robust demand for its artificial intelligence chips.

The company reported a quarterly operating profit of 7.03 trillion won ($5.1 billion), compared with a loss of 1.79 trillion won a year ago. The figure is higher than the consensus of 6.76 trillion won by local analysts provided by market intelligence FnGuide.

Net income came to 5.75 trillion won, shifting from a loss of 2.18 trillion won a year ago, while sales jumped 93.8 percent on-year to 17.57 trillion won.

Third-quarter sales renewed the previous record of 16.4 trillion won set in the second quarter. Operating income and net profit also surpassed the previous records of 6.47 trillion won and 4.69 trillion won, respectively, set during the semiconductor boom in the third quarter of 2018.

Meanwhile, market watchers say SK hynix may have surpassed the operating profit of the world’s No. 1 memory chip maker Samsung Electronics’ semiconductor business in the July-September period. This would secure the company a dominant position in the high-bandwidth memory market, where demand has surged with the expansion of the AI market.

Samsung’s operating profits for the third quarter are estimated to hit 9.1 trillion won, with the semiconductor business alone expected to contribute around 4 to 4.4 trillion won over the cited period.

SK hynix attributed the strong bottom line to demand for AI memory chips, including HBM products and embedded solid-state drives.

“Sales focused on high-margin, value-added products increased, leading to a mid-10 percent rise in the average selling price of both DRAM and NAND compared to the previous quarter, resulting in record-high operating profits,” an SK hynix official said.

During the company’s earnings call held earlier in the day, SK officials said that HBM sales grew by more than 330 percent compared to the same period last year, and eSSD sales increased by over 430 percent.

Additionally, they expect to start shipping 12-layer fourth-generation HBM, or HBM3 chips, in the fourth quarter, with 12-layer products making up more than half of the total fifth-generation HBM3E chip shipments by the first half of next year.

“We will focus on investments in advanced process transitions to ensure a stable supply of products with clear demand growth, such as HBM, DDR5 and eSSDs next year,” said Chief Financial Officer Kim Woo-hyun.

The chipmaker also hinted that it will increase infrastructure investments next year, with investments in the M15X fab and the first phase of the Yongin Cluster fab projected to surpass this year’s figure of around 10 trillion won.

The M15X is expected to start contributing to DRAM production by 2026, according to Kim.

Regarding concerns over the increase in supply from the late-coming Chinese memory companies, the Korean chipmaker pointed out that there is a significant technological gap between the latecomers and the leading companies like the firm.

“While price competitiveness may be more important than performance depending on the application, the need for high-performance memory will grow as AI functionality expands in the future,” the CFO said. “We’ll focus on the high-value-added market to maintain the gap with latecomer firms."

Market watchers say SK hynix will likely break its all-time annual record this year. The company’s previous annual records were 44.62 trillion won in revenue set in 2022 and 20.84 trillion won in operating profit set in 2018. This year’s estimated annual averages are significantly higher, with revenue projected at 66.66 trillion won and operating profit at 23.06 trillion won.

Daishin Securities analyst Shin Seok-hwan said, "SK hynix’s operating profit is expected to rise to 23.1 trillion won in 2024 and 35.5 trillion won in 2025, with 12-layer HBM3E chip shipments starting to increase from the fourth quarter of this year."

"While initial costs may have some impact in the fourth quarter, the contribution to profits is expected to grow meaningfully as the supply of 12-layer HBM3E expands from next year,” he added.

Following the upbeat earnings report, SK hynix shares closed 1.12 percent higher than the previous day to close at 198,200 won on Thursday.