It is essential to make large-scale investments, and it is the norm to increase the value of the future company with investments rather than boosting short-term stock prices
ėŽė§ íë A view of SK Hynix’s Icheon headquarters.
The news that SK Hynix will buy 40 trillion won worth of treasury stocks and incinerate it has caused anxiety for some reason. It’s because of Intel in the U.S.
Intel was serious about buying back its own shares. From 1993 to 2021, the company bought back its own shares every year. The scale alone was worth 152 billion dollars. At that time, Intel also used the fact that its stock price fell short of its intrinsic value as the basis for the purchase of treasury stocks. It is the same as SK Hynix today.
But what is Intel like now. It succeeded in turning into a surplus with operating profit of about $1.79 billion in the second quarter of this year. However, it is incomparable to the glory of the old days, when it was the world’s top semiconductor company.
Of course, it cannot be concluded that the deterioration of Intel’s status is due to the purchase of treasury stocks. There was a reason for the poor fine process. However, it remains a question of what it would have been like to spend more money on R&D and investment instead of buying treasury stocks.
This is not to say that the buyback of treasury stocks is necessarily bad. In many cases, it is desirable to distribute profits to shareholders through share buybacks.
Like Big Tech in the U.S. before the data center boom, if you earn huge amounts of cash without the burden of facility investment, you can. If profits do not fluctuate due to the economic fluctuation cycle, it can also be done. I don’t see any future investment opportunities, but if you’re making a lot of cash right now, you can do it.
In this case, the return of shareholders is the right direction. Until now, many Korean companies have made the mistake of allocating resources inefficiently without returning shareholders. So he committed a crime of low stock prices. It is right for these companies to do dividends or share buybacks.
But is that the case with SK Hynix.
According to the company, this year’s facility investment is in the late 40 trillion won range. However, the amount of money to be spent on treasury stock purchases is also 40 trillion won. It is equivalent to all the money spent on factory and equipment investment this year. It has been less than two months since the company raised about 40 trillion won by listing ADRs on the U.S. stock market to raise funds for investment. However, when he said he would use the equivalent money to buy back his own shares, he tilted his head.
Moreover, memory is a cycle industry. In 2023, SK Hynix had an operating loss of 7.7 trillion won. It was only three years ago. Now that we’re booming, shouldn’t we prepare for when the cycle goes down to the bottom.
I also know that there is a counterargument that memory semiconductors are no longer a cycle industry in the age of AI. But “this time it’s different” has rarely been right. SK Hynix said it plans to return more than 50 percent of its cumulative free cash flow to shareholders between 2025 and 2027. The company gave a clue that the plan was based on the achievement of its financial soundness goals. Still, it is hard to read how heavy the possibility of a down turn is.
As some argue, if memory demand continues to grow in the future, I think we should choose investment rather than burning treasury stocks. Accepting the explosive demand for memory as an investment will increase corporate value. Stock prices will also go up. If the resulting increase in stock prices is expected to be greater than the increase in stock prices due to the burning of treasury stocks, management should of course choose to invest.
Of course, the rise in stock prices due to the retirement of treasury stocks occurs immediately, and the rise in stock prices due to investment is the future. Uncertain. Therefore, those who buy and sell stocks in the short term welcome the burning of their own shares. But managers have to look to the future. You have to bet in the future.
From the same point of view, I am not very happy with the 30 trillion won dividend announced by Samsung Electronics on the 21st. I believe it is more desirable to invest with that money to increase corporate value and increase stock prices. Samsung Electronics is also not free from the semiconductor business cycle.
SK Hynix and Samsung Electronics announced their mid- to long-term investment plans on June 29, with investments reaching 1,100 trillion won and 2,450 trillion won, respectively. Of course, this is an investment vision and a blueprint. However, it is true that it is an investment plan beyond imagination. The risk will be just as great for such a large investment. I wonder if it is okay to throw tens of trillions of won in treasury stocks or have a dividend party. I just hope this anxiety of mine is a tilt.
Editorial Writer Kim In-soo