SK hynix Inc. said Thursday its fourth-quarter net rose 6 percent from a year earlier, below the market expectation in the wake of slowing demand for memory chips.
The net profit for the world's No. 2 memory chip producer came to 3.4 trillion won ($3 billion) in the October-December period, compared with 3.2 trillion won posted a year, the company said.
Its sales gained 10 percent on-year to 9.9 trillion won, while operating profit backtracked 1 percent to 4.4. trillion won, the lowest since the first quarter of 2018.
Last year, memory market conditions continued to be favorable, driven by high demand for data centers and high-performance mobile devices. SK Hynix said that it actively responded to the demand for high value-added products and has achieved the record-breaking business results once again. However, as memory demand slowed down in the second half and the supply shortage was resolved, the memory market environment rapidly changed.
Quarter-over-quarter, DRAM bit shipments declined by 2% and the average selling price by 11%. For NAND Flash, the bit shipments increased by 10%, but the average selling price fell by 21%.
For 2018, SK hynix posted an all-time high net income of 15.5 trillion won on the back of strong global memory chip demand.
Its annual sales and operating profit reached 40.4 trillion won and 20.8 trillion won, respectively, breaking the previous record for the second consecutive year.
The firm's operating margin in 2018 also stood at a record high of 51.5 percent.
SK Hynix plans to concentrate on high value-added products and technologies in order to prepare for the market conditions. The company will expand its customer base of 16Gb DDR4 products to increase the adoption of high density DRAM modules by server customers. It will also respond to customer demand for HBM2 and GDDR6 products with high growth potential. In order to focus on technology migration, the company plans to expand the proportion of 1Xnm DRAM and to ensure stable mass production of 1Ynm DRAM.
For NAND Flash, the company intends to further strengthen its position in the enterprise SSD and mobile market based on its 72-layer 3D NAND, while maximizing profitability by mass producing the 96-layer 4D NAND at the right time.
Amid negative forecasts for memory chip prices and demand for the first half of the year, SK hynix said Thursday it will slash capital expenditures on production facilities including equipment.
During a conference call held after announcing its earnings results for the fourth quarter of 2018 and for the entire year, the company’s officials hinted at a significant reduction in total investment this year due to weakening macroeconomic conditions and a subsequent slowdown in demand.
“Compared to 17 trillion won ($15 billion) worth of investments executed last year, the total amount for this year is estimated to be reduced,” said Cha Jin-seok, chief financial officer of SK hynix. “Reflecting volatilities in the macro economy and slowing demand in various markets, our spending on equipment is to be cut by 40 percent.”
The company could decrease spending more than it has initially planned if demand for memory chips remains slow for longer than expected this year.
Regarding its plan to expand the capacity of the Wuxi fabrication line in China, the official said, “The pace of the ramp-up could slow down in accordance with market conditions.”
The chipmaker, however, will continue investing in constructing a new fabrication line -- M16 – in Icheon, Gyeonggi Province.