SK Hynix's third-quarter report showed revenue exceeding expectations, with operating profit skyrocketing sevenfold year-on-year to reach a historic high, announcing an epic shareholder return of one hundred trillion Korean won

SK Hynix has delivered a mixed report card for the third quarter.

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

At the same time, SK Hynix unveiled an unprecedented shareholder return plan, announcing it will return approximately 100 trillion won (about 75 billion USD) to shareholders in the fiscal year 2026, which includes over 30 trillion won in cash dividends and over 60 trillion won in share buybacks and cancellations. Among them, the third-quarter dividend per share is 20,000 won, which includes a special dividend of 10,000 won per share derived from the investment income in Kioxia. The company also approved a new buyback plan of 20 trillion won, with about half to be canceled after being used for shareholder returns.

In terms of outlook, SK Hynix is quite optimistic. The company stated that the shortage of memory chips will continue until 2030, and quarterly profits have not yet reached their peak, with upward momentum expected to continue at least until 2027. The company also anticipates that DRAM market demand will grow by 20% year-on-year in 2027, while NAND demand growth will be in the high double-digit percentage range.

After the financial report was released, SK Hynix's pre-market quotes on the Nextrade platform showed an increase of about 3%. Although the financial data for this quarter is solid, this increase seems relatively moderate compared to the performance.

Analysts believe that this reaction reflects a common pattern in the recent earnings season of the AI industry chain—performance exceeding expectations often fails to reignite the market's previous exuberance. Meanwhile, the Federal Reserve's interest rate decision and the earnings reports from Alphabet and Microsoft will be announced on the same day, prompting investors to remain cautious before making significant bets.

### Revenue and Operating Profit: Both Crush Expectations, AI Demand Continues to Catalyze

The combination of SK Hynix's third-quarter revenue of 104.62 trillion won and operating profit of 83.33 trillion won is a strong response to external doubts about the sustainability of AI infrastructure investment.

The core logic supporting this strong performance comes from the dual drivers of DRAM and NAND prices. The company disclosed that the average price of DRAM rose by as much as 20% quarter-on-quarter, while the average price of NAND increased by 20% in the mid-range. Counterpoint Research's research director Hwang MS pointed out, "While HBM has indeed experienced price increases, the significant leap in profits this quarter is primarily attributed to the rapid price hikes of traditional DRAM and NAND."

From a broader perspective, memory spending in AI data centers is continuing to expand. According to Macquarie Research, memory currently accounts for about one-third of the total costs of AI data centers, and this proportion is expected to rise further as HBM prices double by 2027. As the most important HBM supplier to NVIDIA, SK Hynix is a core beneficiary of this AI infrastructure arms race.

### Net Profit: What Lies Behind the 35% Discrepancy

Despite exceeding expectations on the operating front, the net profit of 39.53 trillion won fell about 21 trillion won short of the expected 60.73 trillion won, a discrepancy of 35%, which is the most surprising aspect of this quarter's financial report.

From the financial structure, the significant gap between operating profit and net profit may stem from multiple overlapping factors: including tax treatment related to Kioxia investments, foreign exchange gains and losses, one-time non-operating items, and the accounting impact of the company's large-scale shareholder return plan.

This discrepancy reminds investors that when interpreting SK Hynix's earnings quality, it is necessary to examine operating profit and net profit separately. The company's operational profitability remains strong, but the significant shortfall in net profit may create some disturbance in market sentiment in the short term.

### Shareholder Returns: A Trillion Won Epic Plan Fully Explained

The scale of SK Hynix's shareholder return plan is a milestone in the company's history.

In terms of cash dividends, the total cash dividend for the year will exceed 30 trillion won. Among the 20,000 won per share dividend in the third quarter, 10,000 won reflects quarterly operating performance, while the other 10,000 won comes from a special dividend related to Kioxia investment income. The company stated that it will return most of the income from the Kioxia investment to shareholders in the form of special dividends, paid in two installments—incorporated into the third-quarter dividend and the year-end dividend for 2026.

Regarding share buybacks, the company plans to repurchase and cancel over 60 trillion won of shares. In the newly approved 20 trillion won buyback plan, about 10 trillion won will be used for shareholder returns before cancellation, and another 10 trillion won will be allocated to employee compensation. In the future, the board will decide on the scale of subsequent buybacks each quarter based on market conditions, cash flow, and other factors.

Overall, this commitment to return a trillion won is not only a compensatory reassurance for the previous shelving of Solidigm's U.S. listing plan due to shareholder opposition and regulatory scrutiny but also a proactive declaration of the company's confidence in its long-term profitability.

### Memory Chip Shortage Continues Until 2030, Peak Profitability Still Distant

SK Hynix's judgment on the industry's future is quite certain—the shortage of memory chips will persist throughout the latter half of the 2020s, until 2030.

Specifically regarding demand forecasts, the company expects DRAM market demand to grow by 20% in the mid-range year-on-year by 2027, while NAND market demand will grow in the high double-digit percentage range, indicating that both core product lines are in a strong demand cycle.

However, the company also pointed out a hidden concern: as memory prices rise and supply shortages intensify, shipments of PCs and smartphones are expected to decline. This means that demand from the consumer electronics side is under some pressure, and the price elasticity boundaries of the end market are being tested.

From a more macro perspective, SK Hynix, along with competitors like Samsung Electronics and Micron, is shifting production capacity toward HBM, resulting in tighter supply of traditional DRAM and NAND, creating structural support for price increases. Against the backdrop of continued expansion in AI data center investment, this supply-demand pattern is unlikely to reverse in the short term.

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