By Heekyong Yang, Hyunjoo Jin and Joyce Lee
SEOUL, July 29 (Reuters) - South Korean chipmaker SK Hynix reported bumper quarterly results on Wednesday but fell short of lofty investor expectations fuelled by the AI boom, with the company racing to secure long-term supply deals to cushion the memory industry's volatile demand cycles.
The Nvidia supplier's quarterly operating profit soared more than sixfold to a record high, but slower shipment growth in its advanced memory chips used in AI data centres
contributed to smaller- than-expected earnings.
SK Hynix reported an operating profit of 60.5 trillion won ($41.62 billion) for the April-June period, compared with 9.2 trillion won a year earlier and short of a 64 trillion won forecast by LSEG SmartEstimate, which is weighted toward analysts who are more consistently accurate.
"Driven by sustained demand growth from expanding AI infrastructure investments, high-performance products for AI servers led price increases, enabling the company to surpass its previous record set in the prior quarter," SK Hynix said in a statement.
Its shares slipped 1.5% in Seoul, following a nearly 15% slide on Tuesday that had been spurred by concerns over AI infrastructure financing and intensifying competition from China.
Worries about the ability of "hyperscalers" like Microsoft, Alphabet, Amazon, Meta Platforms and Oracle to fund hundreds of billions of dollars of planned investment in AI infrastructure have driven down chip shares globally in recent weeks.
AI DEMAND REMAINS ROBUST
Despite those concerns, SK Hynix struck an optimistic note on AI memory demand, saying major technology companies continue to expand investments in AI infrastructure.
"With major tech companies increasing their AI infrastructure investments, additional supply requests continue to mount," the company said. "As these investments are supported by revenue generated from AI services, the momentum in memory demand is expected to persist."
The company said it has concluded talks on around 10 long-term agreements (LTA) with key customers and continues discussions with other major industry players.
It also said the contracts incorporate financial mechanisms, including deposits, to support fulfillment, improving visibility into mid- to long-term demand.
However, SK Hynix raised prices by less than Samsung Electronics, particularly on long-term customer contracts, contributing to its earnings miss, said Lee Su-rim, an analyst at DS Investment & Securities.
"Samsung has greater pricing power and has raised prices more aggressively than SK Hynix," Lee said.
Reflecting its confidence in future demand, SK Hynix said it plans to raise capital expenditure this year to the high-40 trillion won range, up from 30.173 trillion won in 2025.
Buoyed by strong AI-driven earnings, SK Hynix's net cash reached 88 trillion won at the end of June. The company said it aims to increase that to more than 100 trillion won to better respond to customer demand and stabilise business operations.
With the company's cash balance approaching its long-term target, investors are increasingly focused on how that cash will be deployed, Kim Sunwoo, a senior analyst at Meritz Securities, said. He said investor sentiment has shifted toward seeking a better balance between continued investment for growth and shareholder returns.
SK Hynix's net profit rose more than 13-fold to 93.9 trillion won, driven in part by 63.3 trillion won in gains related to investment assets, it said, without providing further details.
Analysts estimated that the company recognized cumulative investment gains following the completion last month of the sale of its stake in Japanese NAND flash memory maker Kioxia.
SK Hynix invested about 4 trillion won in Kioxia in 2018 through a Bain Capital-led consortium of U.S., Japanese and South Korean investors, participating via two special purpose vehicles.
The company said its quarterly revenue rose 257% to 79.3 trillion won.
($1 = 1,453.7200 won)
(Reporting by Heekyong Yang and Joyce Lee; Editing by Jamie Freed and Sonali Paul)
