SK hynix: Fiscal 2Q19 Financial Results

(in billion KRW)	2Q18	2Q19	6 mo. 18	6 mo. 19
Revenue	10,371	6,452	19,091	13,225
*Growth*		-38%		*-31%*
Net income (loss)	4,329	537	7,450	1,639

SK hynix Inc. announced financial results for its second quarter 2019 ended on June 30, 2019.

The consolidated 2Q19 revenue was 6.45 trillion won ($6.45 million) while the operating profit amounted to 638 billion won and the net income 537 billion won. Operating margin for the quarter was 10% and net margin was 8%.

As demand recovery did not meet expectations and price declines were steeper than expected, the revenue and the operating profit in the second quarter fell by 5% and 53%, respectively, Q/Q.

DRAM bit shipments increased by 13% Q/Q as the company actively responded to the mobile and PC DRAM markets, where demand growth was relatively high. However, DRAM prices remained weak and the ASP dropped by 24%.

For NAND flash, the bit shipments increased by 40% Q/Q because of demand recovery due to price declines, while the ASP decreased by 25%.

The firm plans to adjust production and investment flexibly to respond to the market conditions.

The company will cut its DRAM production capacity from the fourth quarter and will convert part of the DRAM production lines of its M10 fab in Icheon, Korea, to CMOS image sensor (CIS) mass production lines from the second half. This is to reduce DRAM wafer capacity considering the DRAM demand environment and to strengthen the competitiveness of its CIS business. In addition, with the capacity decrease due to DRAM tech migration, DRAM capacity is likely to continue to decrease until next year.

The firm added that it will also increase the NAND wafer input reduction this year to more than 15%. It announced last semester that it would decrease the NAND wafer input this year by more than 10% compared to last year.

In addition, it plans to review, assessing the demand situation, the timing of securing additional clean room space at its M15 fab in Cheongju, Korea, and installing equipment at the M16 fab in Icheon, which is expected to be completed in 2H20. As a result, the amount of investment next year is expected to be lower than this year.

It will continue to focus on technology migration and high-density, high-value-added products.

It intends to increase the proportion of 1Xnm and 1Ynm DRAM to 80% by the end of this year and start selling 1Ynm computing products from the second half of this year.

For NAND flash, it will focus on its 72-layer NAND but also plans to target the high-end smartphones and SSD market by increasing the proportion of 96-layer 4D NAND from 2H19. The company will prepare for mass production and sales of the 128-layer 1Tb TLC 4D NAND flash.

Comments

Amidst rising external uncertainties, consolidated sales in the second quarter was KRW 6.452 trillion, down by 5% from the previous quarter and -38% Y/Y. This is despite the higher unit sales in the second quarter owed to the continuous faster than expected ASP decline.

The following comments are on NAND only as the company is also deeply involved in DRAM.

Chemicals, the firm needs to manufacture chips, were restricted because of Japan-Korea trade dispute

In its NAND market, price decline is leading to a lasting recovery of demand across most applications. As PC CPU under supply situation starts to be eased, adoption of high-density SSD of over 512GB is rapidly increasing and the mix for the MCP products that adopt 64GB or over is approaching nearly 50%, continuing the content increasing trend. Internet data center clients who have been passive in NAND - as well as in DRAM - are expected to begin gradually increasing their purchase of server SSD in 2H19.

But from the supply side, NAND suppliers are reducing wafer capacity and wafers input, and due to the production disruptions of some NAND suppliers, the pace of inventory reduction across the industry is likely to accelerate. This is heightening the possibility of easing the NAND supply/demand imbalance in 2H19, and thus, price decline is expected to slow down considerably.

The company will accelerate the reduction of 2D wafer capacity for which demand is quickly declining, bringing down NAND wafer input by over 15% this year Y/Y compared to the originally planned reduction of 10%.

It plans to gradually increase the portion of 96-layer starting in 2H19. It will focus on sales for high-end smartphones and PCIe SSD market. And it will prepare for volume production and sales of the 128-layer, 1Tb TLC product, which the company became the first to develop in June.

Given the higher-than-planned shipment in 1H19, NAND bit shipment growth target has been adjusted upward to high 40%.

Read also:
SK Hynix: Fiscal 1Q19 Financial Results
NAND flash ASP decreased by 32%, bit shipments by 6% Q/Q.
by Jean Jacques Maleval | April 26, 2019 | News