SK hynix: Fiscal 4Q19 Financial Results

(in billion KRW)	4Q18	4Q19	FY18	FY19
Revenue	9,938	6,927	40,445	26,991
*Growth*		-30%		*-32%*
Net income (loss)	3,398	(118)	15,540	2,016

SK hynix Inc. announced financial results for FY19 and 4FQ19 ended on December 31, 2019.

The consolidated revenue of fiscal year 2019 was KRW 26.99 trillion won while the operating profit amounted to 2.71 trillion won, and the net income 2.02 trillion won. Operating margin for the year was 10% and net margin was 7%.

In order to respond to changing market conditions, the company proactively adjusted both investment and output level last year to maximize business management efficiency. However, amid increasing global economic uncertainty, the increase of inventory burden and conservative purchasing policies on the side of the customers led to a slowdown in demand as well as price falls. As a result, the company’s earnings decreased Y/Y.

The consolidated 4FQ19 was 6.93 trillion won, while the operating profit amounted to 236 billion won with operating margin of 3%, and the net loss 118 billion won.

Despite bearish $US, 4FQ19 increased by 1% Q/Q as the company responded to demand recovery. However, 4FQ19 operating income decreased by 50% Q/Q, due to the relatively low profitability of the product lines, the proportion of which had expanded to meet demand increase, and the cost burden of new technology migration.

DRAM bit shipments increased by 8% Q/Q, and the ASP dropped by 7%.

NAND flash bit shipments increased by 10% Q/Q, and the ASP remained stable.

While the firm sees the recent improvement in demand flows positively, the company will carry out more prudent production and investment strategies, as complexities and uncertainties still remain much higher than in the past. As such, the company aims to improve technology maturity rapidly in the process of technology migration and prepare for next-gen products, accelerating cost reduction.

For DRAM, it plans to increase the proportion of 1Ynm products and focus on markets which are expected to grow, such as LPDDR5. Additionally, the company will begin mass-production of 1Znm products within 2020.

For NAND flash, it will continuously increase the proportions of 96-layer products and SSD sales. The company will also start mass-production of 128-layer products this year and aim to increase the sales in the high-density solution market.

SK hynix announced the new dividend policy in order to improve the predictability of the stakeholder return and reflect earnings fluctuations. The company will fix the minimum dividend per share at 1,000 won, and pay out 5% of the annual free cash flow. According to the new policy, dividends per share in 2019 is determined 1,000 won, considering that the company’s free cash flow was below zero in FY 2019.

Comments

Both Micron and SK hynix, being the world's 2 memory chip makers, are mainly in DRAM and NAND and then can be compared:

Firm

Ended in

Revenue in $billion

Y/Y
growth

Net income

Micron

2019

August

23,406

-23%

6,313

SK hynix

2019

December

22,574

-32%

1,683

They are the biggest storage companies in term of sales in the world, being ≠1 and ≠2 respectively for firms ending their fiscal year in 2019. Both suffer for about the same reason in FY19, with sales declining strongly but remaining profitable.

Consolidated sales of SK hynix in 4FQ19 was KRW6.927 trillion, up 1% from the previous quarter.

NAND flash bit shipment grew by 10% in line with the plan. The company responded to the continued strong demand in the solutions market, such as PC SSD and newly launched mobile products. Although price rebound began for major products, ASP remained flat Q/Q due to increased sales mix of high density products, which carried lower price per unit.

Demand market, amidst PC SSD attached ratio increasing steadily since the second half of last year, server customers resumption of investment is driving demand for data center SSD. And as a result, demand in the first half is expected to exceed that of traditional seasonality.

For PC SSD, adoption rate of higher density, 512GB or above is expected to increase from around 20% at the beginning of last year to mid-40% by this year-end. For servers, adoption of high-density PCIe-based SSD is expected to accelerate, especially server SSD is expected to show around 40% demand growth and lead the overall NAND demand.

Mobile NAND demand is projected to keep growing with average content per box increasing to over 100GB. With smartphone makers, hardware upgrades and preference for high-spec smartphones at times of replacement period.

But given the base effect of the very substantial increase in average content per box in the past 2 years at over 40% per annum, growth rate is likely to be slightly more modest this year. Given this picture, NAND demand bit growth is projected at low 30% this year.

The firm will start mass production of 1z nm and 128-layer 3D NAND, the next-gen products within this year and expand sales into the high-value add solution market.

This year, the company's plan for over 40% for NAND shipments and planned at low 10% increase as it actively respond to the rising demand for data center SSD.

Warning following Coronavirus
Company warned a virus outbreak in China could pose a threat to chip production and would sharply reduce annual investment after posting a steep fall in quarterly profit.

"We are preparing a contingency plan," said SK Hynix finance chief Cha Jin-seok. The virus outbreak has caused no production disruptions at Hynix, which has a chip plant in the eastern Chinese city of Wuxi, but manufacturing could be hit if the situation was prolonged."