SK Hynix released a mixed report for the third quarter: for the first time in history, operating revenue exceeded 100 trillion Korean won, with both operating revenue and operating profit increasing by 32% and 38% respectively month-on-month, but net profit fell short of expectations.

The world's second-largest memory chip manufacturer announced on Wednesday (October 27) that its operating profit in the third quarter soared sevenfold year-on-year to 83.33 trillion Korean won, far exceeding the market forecast of 76.27 trillion Korean won, by about 9%; revenue was 104.62 trillion Korean won, also higher than the market expectation of 97.34 trillion Korean won, by about 7%. However, net profit was only 39.53 trillion Korean won, significantly lower than the market forecast of 60.73 trillion Korean won, becoming the biggest surprise in this quarter's financial report.

At the same time, SK Hynix announced an unprecedented shareholder return plan, stating that in the fiscal year 2026, it will return approximately 100 trillion Korean won (about 75 billion US dollars) to shareholders in total, including over 30 trillion Korean won in cash dividends, as well as over 60 trillion Korean won in share repurchases and cancellations. In the third quarter, a dividend of 20,000 Korean won per share was distributed, which includes a special dividend of 10,000 Korean won per share derived from investment earnings in Japan's Kioxia ( Kioxia ). The company has also newly approved a 20 trillion Korean won share repurchase plan, with about half of it to be cancelled after being used for shareholder returns.

In terms of outlook assessment, SK Hynix stated that the shortage of memory chip supply will continue until 2030, and quarterly profits have not yet peaked; the upward trend is not expected to reverse until at least 2027. The company also anticipates that in 2027, DRAM market demand will grow by about 20% year-on-year, with NAND demand growth rates expected to be in the high single-digit percentage range.

SK Hynix also stated that with the commencement of production at the Longjin Phase I wafer factory next year, as well as the advancement of infrastructure investments both domestically and internationally, the company's investment scale is expected to increase significantly compared to this year. The company mentioned that it will flexibly adjust the investment scale and timing based on customer demand, product competitiveness, profitability, and investment efficiency, and anticipates that revenue and operating profits will rise to new levels next year.

After the financial report was released, the quote for SK Hynix on the Nextrade platform showed an increase of about 3% before trading began. Although the financial data for this quarter is strong, this increase is relatively modest compared to the performance.

Analysis suggests that this reaction reflects a common pattern during the recent financial reporting season for the AI industry chain: when performance exceeds expectations, it is often difficult to reignite the previous enthusiasm in the market. At the same time, the Federal Reserve's interest rate decisions, as well as the financial reports of Alphabet and Microsoft, which will also be released on the same day, are causing investors to remain cautious before making large bets.

Revenues and operating profits: both exceeded expectations, AI demand continues to support

Hynix's third-quarter revenue of 104.62 trillion Korean won and operating profit of 83.33 trillion Korean won are seen as a powerful response to external doubts regarding the sustainability of AI infrastructure investments.

The core factor supporting this strong performance comes from the simultaneous increase in the prices of DRAM and NAND. The company disclosed that in the third quarter, the average price of DRAM increased by 20% month-on-month, and the average price of NAND increased by around 20%. Counterpoint Research, the research director, stated: "Although HBM is indeed experiencing price increases, the significant leap in profits this quarter is mainly attributed to the rapid price hikes of traditional DRAM and NAND."

From a broader perspective, the memory expenditure of the AI data center is continuing to expand. According to research data from Macquarie, memory currently accounts for about one-third of the total costs of the AI data center, and this proportion is expected to rise further as the price of HBM more than doubles by 2027. As one of NVIDIA's most important HBM suppliers, SK Hynix is becoming a key beneficiary of this round of AI infrastructure investment expansion.

Net profit: 35% lower than expected

Despite exceeding expectations across all operational aspects, the net profit of 39.53 trillion Korean won was approximately 21 trillion Korean won lower than the anticipated 60.73 trillion Korean won, representing a shortfall of 35%, which became the most surprising aspect of this quarter's financial report for the market.

Inference from the financial structure suggests that the significant gap between operating profit and net profit may stem from a combination of factors, including tax treatments related to KaiXia's investments, exchange rate gains and losses, one-time non-operating items, as well as the impact of the company's large-scale shareholder return plans at the accounting level.

This gap also reminds investors that when interpreting the profitability quality of SK Hynix, it is necessary to examine operating profit and net profit separately. The company's operational profitability remains strong, but the net profit fell significantly short of expectations, which may cause some disturbance to market sentiment in the short term.

Shareholder Return: 100 trillion Korean won plan

SK The scale of Hynix's shareholder return plan this time can be regarded as a milestone in the company's history.

In terms of cash dividends, the total annual cash dividend amount will exceed 30 trillion Korean won. Of the 20,000 Korean won per share in the third quarter, 10,000 Korean won reflect the quarterly operating results, while the additional 10,000 Korean won come from a special dividend from the investment in Kioxia. The company stated that it will return most of the profits obtained from the Kioxia investment to shareholders through this special dividend, which will be paid in two installments: included in the third-quarter dividend and the year-end dividend for 2026.

In terms of share repurchase, the company plans to repurchase and cancel more than 60 trillion Korean won worth of shares. Of the newly approved 20 trillion Korean won repurchase plan, approximately 10 trillion Korean won will be used for shareholder returns and then cancelled, while the remaining 10 trillion Korean won will be allocated for employee compensation. In the future, the board of directors will decide on the subsequent repurchase scale each quarter based on market conditions, cash flow, and other factors.

Analysis suggests that this commitment of a return of 100 trillion Korean won serves both as a compensatory measure to appease shareholders and regulatory authorities who opposed and delayed the company's plan to go public in the United States (Solidigm), and it also reflects the company's confidence in its own long-term profitability.

Storage chip shortage may persist until 2030

SK Hynix has a rather clear judgment about the industry's future: the shortage of memory chip supply will persist throughout the second half of the 2020s, all the way to 2030.

Specifically in terms of demand forecasting, the company expects that by 2027, the market demand for DRAM will grow by a mid-range of 20% year-on-year, while the market demand for NAND is expected to increase by over ten percentage points, indicating that both core product lines are in a period of strong demand.

For the storage market, SK Hynix expects that in the short term, demand will be driven by enterprise-level and consumer-grade AI products, while in the medium to long term, it will be driven by physical AI applications such as autonomous driving and robotics, and the market is expected to continue to grow.

On the other hand, SK Hynix believes that the supply side has not been able to keep up with the market growth rate. Due to the increasing difficulty of advanced manufacturing processes and the long time required to build new production facilities, it is expected that the situation of supply falling short of demand will continue until 2030.

SK Hynix stated that it has signed long-term supply agreements ( LTA ) with 14 major customers, including global large-scale cloud service providers, and is currently in preliminary discussions with some customers to extend the agreement terms. The typical duration of these agreements is 5 years. The company mentioned that as of now, the committed LTA supply volume already accounts for more than 50% of the total production capacity for 2027 and 2028.

However, the company also pointed out a concern: with rising memory prices and an intensifying supply shortage, PC and smartphone shipments are expected to decline. This indicates that there is some suppression of demand in the consumer electronics sector, and the price elasticity boundaries of the terminal market are being tested.

From a more macroscopic industry perspective, SK Hynix, along with competitors such as Samsung Electronics and Micron, has shifted its production capacity towards HBM. As a result, the supply of traditional DRAM and NAND has become tighter, providing structural support for price increases. Against the backdrop of ongoing expansion in AI data center investments, this supply-demand pattern is unlikely to reverse in the short term.