Korean memory maker SK Hynix reported disappointing second-quarter earnings results on Wednesday evening. Its American depository shares were down 6% in after-hours trading, after declining 9% in regular trading hours.
Revenue for the quarter reached 79 trillion Korean won, well short of expectations of 84 trillion won, but up 257% on the year. These were quarterly records for the company.
Operating profit and margin also set records, but fell short of Wall Street expectations. Analysts saw 64 trillion won in operating income, but the company only delivered 61 trillion.
This is breaking news. Read a preview of Hynix's earnings below and check back for more analysis soon.
On Tuesday evening, Korean memory giant SK Hynix will report its first earnings since it issued American depository shares earlier this month.
It will likely be another chapter in the wild ride Hynix and its competitors Micron and Samsung Electronics have been on, as investors try to figure out when the end of the world's severe memory shortage will arrive.
Hynix' Korean shares are down 48% from their 52-week high from late June, but also up 533% from the low a year ago. The stock trades at only 4 times earnings per share for the next 12 months, according to Wall Street analysts polled by FactSet.
The analysts project second-quarter EPS of 71,211 Korean won, rising from just 9,612 last year. Sales are seen at 84.1 trillion won, up 278%. Gross profit margin is expected to come in at 84%. These would be records for the company, just like last quarter.
Memory is a commoditized business with inventories and prices having regular sharp cycles. The 2023 down-cycle was one of the worst the industry had ever seen, with Hynix seeing five consecutive quarters with negative gross margin. The memory giants were loath to commit to much manufacturing capacity expansion that year or the following one with their current financials so grim.
Because of the long lead times for these factories, their caution is having a huge impact on memory prices this year.
Memory and storage chip demand from the artificial-intelligence data center boom has eclipsed everything else, and until new factories begin to open up in the middle of next year, supply is fairly fixed. Inventories are depleted and memory prices are shooting up faster than they ever have, leading to record quarters for the memory makers.
The old rule of thumb for cyclical chip industries is that the best time to buy is when things have gone from desolate to merely terrible. The best time to sell is when gross margins are peaking, and many are interpreting the current environment as that.
But Hynix and its competitors are using their newfound leverage to lock in high prices with long term deals. Last week Alphabet revealed that it had added nearly a half trillion dollars in long-term supply agreements to its future commitments, and a good portion of that is likely memory and storage chips. Last week, Hynix signed a blockbuster two-way supply deal with Nvidia, totaling a half trillion dollars in spending from both companies combined.
Wall Street analysts think that Hynix can keep gross margin inching up through the end of next year. The upcycle may still have some life in it, despite the July selloff.
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