SK Hynix achieved a record operating profit margin of 76%, surpassing the global foundry leader TSMC. However, the growing competition from China poses a significant threat to its high-profit structure.
On July 29, SK Hynix announced an operating profit of 60.54 trillion won for the second quarter, marking a substantial increase from 41% during the same period last year. This figure demonstrates the company's robust profitability, establishing a high-value structure that generates significant profits as sales increase.
SK Hynix has outperformed TSMC in operating profit margin for three consecutive quarters. In the fourth quarter of last year, the margin gap was only 4 percentage points, with SK Hynix at 58% and TSMC at 54%. However, in the second quarter of this year, TSMC's operating profit margin was only 60.3%, widening the gap to around 15 percentage points.
The key driver behind SK Hynix's remarkable profit margin is undoubtedly high-bandwidth memory (HBM). Although HBM's average margin is in the 60% range, lower than the 80% margin for standard DRAM, the surge in supply to major global tech companies has significantly contributed to profit growth. SK Group Chairman Chey Tae-won emphasized in February that "HBM is a monster chip that generates substantial revenue."
The overall price increase in memory products and stable trading structures have also supported the surge in profits. The simultaneous rise in DRAM and NAND flash prices has greatly improved the profitability of standard products, aided by long-term supply agreements (LTA) with major tech firms. Analysts suggest that supplying large volumes at fixed prices has established a high-margin structure despite supply uncertainties.
An Gi-hyun, executive director of the Korea Semiconductor Industry Association, stated, "SK Hynix has established itself as an indispensable core partner in the AI infrastructure market, going beyond being a mere memory semiconductor supplier. By maximizing the improvement of its product mix centered on high-value products despite limited production capacity, it has set a profitability benchmark that will be hard to break in the industry for the time being."
However, some experts argue that in light of the intensifying competition from China, it is urgent for SK Hynix to develop practical strategies to maintain sustained profitability. Chinese semiconductor companies like ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies (YMTC) are rapidly increasing their market share, backed by substantial government subsidies and their own technological advancements. CXMT's global DRAM market share, which was only about 3% in the first quarter of last year, has surged to over 8% within a year, demonstrating a threatening growth trajectory.
The Korea Institute for Industrial Economics and Trade reported in February that "among 30 evaluation items in the semiconductor sector, China outperforms Korea in 19 items (63.3%), including research and development (R&D) and finished product manufacturing." Even though SK Hynix maintains a dominant position in the HBM market, there are concerns that a price war from low-cost Chinese products could pressure the prices of standard memory, impacting overall profitability.
Kim Yang-pyung, a senior researcher at the Korea Institute for Industrial Economics and Trade, noted, "While the ultra-high-profit structure led by HBM appears solid, if the profitability of standard memory, which supports overall performance, is compromised, a decline in overall results is inevitable. Given the rapid pace at which China is encroaching on the market with price competitiveness, proactive shifts in processes and securing next-generation technologies are essential to widen the gap with China further."
* This article has been translated by AI.
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