SK Hynix, a leading South Korean chipmaker, saw its shares surge by 10.89% on Wednesday following the announcement of record-breaking quarterly profits that far exceeded market expectations. The company also revealed plans to distribute over 100 trillion won in dividends and share buybacks, further boosting investor confidence.
The chipmaker's third-quarter results showcased a remarkable 327.9% increase in revenue compared to the same period last year, while operating profit soared by 632.1%. These figures also represented significant growth from the previous quarter, with revenue and operating profit climbing 31.9% and 37.6% respectively. The impressive performance helped SK Hynix outpace the broader Kospi index, which rose by 6.63%.
For the first time, SK Hynix's quarterly sales surpassed 100 trillion won, marking a milestone for the company. In a bid to return value to its shareholders, the company announced plans to distribute approximately 100 trillion won, including at least 30 trillion won in cash dividends and 60 trillion won in share buybacks and cancellations.
During an earnings call, CEO Kwak Noh-Jung addressed the decision to pause the review of potential pre-IPO fundraising and IPO options for its U. S. subsidiary, Solidigm. He attributed this move to financial market volatility and a correction in semiconductor stocks, noting that an IPO would not currently deliver the expected benefits. However, SK Hynix remains committed to evaluating investment timing and financing options to support Solidigm's growth.
Kwak also highlighted plans to return gains from the company's investment in Japanese chipmaker Kioxia to shareholders through a special dividend. The third-quarter dividend approved by SK Hynix amounts to 14 trillion won, including the special dividend funded by Kioxia investment gains. Additionally, the company will execute a 20 trillion won share buyback, with half of these shares to be cancelled within the year.
Looking ahead, SK Hynix aims to increase its shareholder return target to more than 50% of cumulative free cash flow generated between 2025 and 2027. This strategy is driven by the anticipated momentum in AI investments, spurred by the growing adoption of AI services and a more diverse investor base.
The company also anticipates a continued structural supply-demand imbalance in the memory market, where demand is expected to outstrip supply for the foreseeable future. This outlook is supported by the rising average selling prices for DRAM, which increased by a high-20s percentage from the previous quarter, due to higher conventional DRAM prices and a growing share of higher-priced HBM4 sales.
SK Hynix's production of HBM4, the sixth generation of high-bandwidth memory, began in the third quarter, with expectations that it will surpass HBM3E in shipments and revenue in the fourth quarter. The company is ramping up production at its M15X facility in Cheongju, South Korea, to meet the growing demand.
Shipments of server DDR5 memory chips, used in data center servers, rose by more than 40% from the previous quarter. SK Hynix has secured long-term agreements with 14 major customers, covering more than 50% of its production capacity for 2027 and 2028. The company plans to significantly increase investment next year, anticipating that memory demand will continue to outpace supply through 2030.
Despite the positive outlook, Mehdi Hosseini, senior equity research analyst at Susquehanna International Group, maintained a neutral rating on SK Hynix. He expressed a preference for Micron and Samsung Electronics over SK Hynix, citing Micron's diversified memory portfolio and Samsung's foundry business as offering a better risk-reward profile. Hosseini also noted that SK Hynix shares were undervalued, favoring its U. S.-traded American depositary receipts (ADRs) over its South Korean-listed shares due to the larger pool of potential investors in the U. S.
