SK hynix Q3 operating profit plunges 93%
SK hynix saw its operating profit plunge 93 percent in the third quarter from a year earlier, hit by falling memory chip prices and sluggish global demand, the chip-making arm of SK Group said Thursday.
In its third-quarter earnings report, the company logged 6.83 trillion won ($5.83 billion) in sales and 472.6 billion won in operating profit, down 40 percent and 93 percent from the same quarter in 2018.
This is the first time the chipmaker has posted an operating profit below 500 billion won since the second quarter of 2016 when it posted 452.8 billion won.
SK hynix rode high on a semiconductor super-cycle for the past two years thanks to soaring demand for memory chips for corporate servers and data centers.
However, the company has suffered dramatic falls in 2019 because of decreased memory chip demand from global IT companies, stagnant smartphone sales, and growing uncertainties caused by trade disputes between the U.S. and China and between Korea and Japan.
The company elaborated its profit was decreased by almost one-tenth because its efforts to decrease production costs of memory chips couldn’t offset the price decline.
“The revenue in the third quarter increased by 6 percent quarter-on-quarter as demand began to pick up. However, the operating profit fell by 26 percent quarter-on-quarter as the DRAM unit cost reduction was not enough to offset the price drop,” the company said.
The world’s second-largest memory chipmaker said its DRAM sales increased by 23 percent from the previous quarter, but the average selling price was decreased by 16 percent as it saw a continued price decline.
For the NAND flash memory chips, the company focused more on the high-density mobile and solid state drives (SSDs) markets, which are showing signs of recovery, but the sales volume was decreased by 1 percent from the previous quarter.
As the sluggish semiconductor demand is expected to be prolonged, the company said it will decrease its investment and production capacity for both DRAM and NAND flash memory chips.
It will transform part of the DRAM production line in its M10 plant in Icheon, Gyeonggi Province, to CMOS image sensor production lines and decrease production capacity of 2D NAND flash chips as well.
“As a result, both DRAM and NAND flash capacity will decrease next year compared to this year, and the amount of investment is expected to shrink considerably next year as well,” SK hynix said.