SK hynix’s debt drops significantly despite large investments in HBM

SK hynix Inc.’s headquarters, located in Icheon, Gyeonggi-do. [Photo by Yonhap]

South Korea’s SK hynix Inc., a leading player in the global artificial intelligence (AI) memory semiconductor market, is reportedly set to reduce its net debt by over 5 trillion won ($3.67 billion) in the second half of 2024. It is also expected to cut more than 10 trillion won in net debt on an annual basis.

The company has been using the profits from a surge in sales of high-bandwidth memory (HBM) for AI to pay down its debt and improve its financial structure while continuing to invest heavily in facilities, as is typical of the semiconductor device industry. This reflects its dual focus on growth and financial stability.

According to SK hynix’s semi-annual report released on Thursday, the company‘s net debt, which is essentially its actual debt, totaled 15.5 trillion won at the end of the second quarter of 2024. This figure was calculated by subtracting cash and cash equivalents (9.7 trillion won) from the total borrowings (25.2 trillion won).

SK hynix’s net debt rose from 8.9 trillion won at the end of 2021 to 16.6 trillion won by the end of 2022, and it surged to 20.6 trillion won during the semiconductor market downturn in 2023. However, the company managed to reduce its net debt by approximately 5 trillion won in the first half of 2024, including repaying 4.2 trillion won in debt. This reduction is particularly notable given the company‘s increased investments in expanding HBM production capacity and constructing the M15X facility in Cheongju during the same period. The company also disclosed that it invested 5.96 trillion won in facilities in the first half of the year to boost production capacity.

SK hynix is known to have set a policy of planning its investments based on customer demand and profitability while executing them within the bounds of its operating cash flow.

Kim Woo-hyun, the company’s chief financial officer, stated during the 2024 earnings call that the company would focus its investments on areas where growth and profitability are assured and would avoid a cycle in which increased investments lead to oversupply, as was the case in the past. This indicates that the company is committed to continuously improving its financial health despite its stated plans to invest 103 trillion won over the next five years.

SK hynix is expected to see operating profits of 7 trillion won in the third quarter and 9 trillion won in the fourth quarter of 2024. The company is anticipated to reduce its net debt by more than 5 trillion won in the second half of the year as a result and is aiming for a total reduction of over 10 trillion won for 2024 as a whole.

For their part, global credit rating agencies paid attention to SK hynix’s efforts to improve its financial stability, which led to a series of credit rating upgrades for the company.

Moody‘s Corp. raised the company’s credit rating outlook by one notch from ‘negative’ to ‘stable’ on Wednesday, local time, while Standard & Poor’s (S&P) Global Ratings Inc. upgraded its credit rating from ‘BBB-’ to ‘BBB,’ its highest-ever rating, on August 7th, 2024.

The credit rating agency praised SK hynix for its commitment to reducing debt as well as taking the significantly improved profits and cash flow into consideration, while S&P projected that the company would generate sustained positive cash flow over the next two years, reducing its borrowings and maintaining strong credit metrics.

SK hynix is the only global memory semiconductor company to have both its credit rating and outlook upgraded in 2024, highlighting its rapid recovery from the previous year’s severe semiconductor downturn. It now holds a credit rating that is a notch higher than that of U.S. semiconductor firm Micron Technology Inc., according to Moody’s and S&P.

These credit rating upgrades by the rating agencies are also expected to lower the company’s bond issuance costs.