Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SK Hynix Inc (FRA:HY9H, Financial) reported a record quarterly revenue of KRW16.4 trillion, marking a 32% sequential increase and a 125% year-on-year increase.
- Operating profit for the second quarter increased by KRW2.58 trillion from the previous quarter to KRW5.47 trillion, with an operating profit margin of 33%.
- HBM sales grew significantly, with an 80% increase from the previous quarter and over 250% year-on-year growth.
- The company plans to release high-density server DRAM and MCRD products in the second half of the year, targeting the high-performance computing market.
- SK Hynix Inc (FRA:HY9H) is expanding its enterprise SSD sales, expecting annual sales to grow nearly four times compared to last year.
Negative Points
- Shipments of enterprise SSD and mobile products decreased by low single digits sequentially due to muted demand recovery.
- Non-GAAP operating loss net of gain for the second quarter was KRW0.42 trillion, including net interest expense and net foreign currency-related loss.
- Consolidated cash and cash equivalents decreased by KRW0.6 trillion from the end of the previous quarter.
- The company expects a mid-single digit percent sequential decrease in bit shipment despite an increase in ESSD sales volume.
- Investment needs are rising to meet demand for conventional DRAM and HBM, leading to higher than expected CapEx levels for the year.
Q & A Highlights
Q: Can you provide more details on the upside for commercial server DRAM demand and how it translates into your expectations for server DRAM bit demand growth?
A: (Kim Woohyun, CFO) The demand for AI servers that began last year continues, and we are also seeing an improvement in demand for general-purpose servers. This is driven by the impending replacement cycle for cloud data center servers and the rapid growth of ARM servers with high power consumption, leading to upgrades for improved power efficiency. We expect mid-20% demand growth for general-purpose servers this year.
Q: With recent announcements of increased investment and capacity utilization by memory companies, what is your view on supply growth beyond 2025?
A: (Kim Woohyun, CFO) The current investment ramp-up is centered on HBM, which has different market structures and production characteristics than conventional DRAM. Increased investment in HBM is based on customer contract volumes for at least two years, and the limited production growth is expected to be exacerbated as HBM generations are upgraded. We expect the memory industry to evolve to a low-volume production of a wide variety of products.
Q: Can you elaborate on SK Hynix's investment direction for this year and next year?
A: (Kim Woohyun, CFO) Our investment this year is higher than planned due to higher-than-expected demand for HBM products and our decision to invest in fab to secure clean rooms for the mid to long term. In 2025, demand for both HBM and general memory is expected to increase, requiring significant investment into infrastructure. We expect the scale of investment to increase compared to the historical average.
Q: How does the company plan to manage the capacity between HBM and general DRAM to maximize value and profitability?
A: (Kim Woohyun, CFO) While overall capacity is expected to increase next year, a significant portion will be utilized to ramp up HBM production. The tight supply situation for conventional DRAM is likely to continue. If demand recovery for conventional DRAM accelerates, its profitability may be higher than that of HBM. We will seek to maximize long-term profitability by considering the growth and stability of HBM revenue, our market position, and customer relationships.
Q: What are your plans for HBM capacity to meet demand next year?
A: (Kim Woohyun, CFO) We will more than double our TSP capacities from last year's level to meet growing demand this year. We expect to rapidly expand the supply of HBM3E based on increased TSP capacities and 1Z nanometer conversion investment, resulting in over 300% revenue growth compared to last year. We expect shipments to more than double next year, with HBM3E 12-high product as our flagship.
Q: How is demand for enterprise SSDs this year compared to last year, and what is your outlook and strategy for ESSDs going forward?
A: (Kim Woohyun, CFO) Demand for enterprise SSDs is growing significantly, exceeding expectations. We plan to respond with a diverse lineup of enterprise SSD products to meet customer demand. We are the only company offering QLC-based enterprise SSD products over 60 terabytes and plan to introduce 128 terabyte and later 266 terabyte products. We aim to increase our sales volume fourfold and strengthen our position as a top player in the high-growth ESSD market.
Q: What was the size of the reversal of the inventory valuation allowance in the second quarter, and is there a possibility of further reversals?
A: (Kim Woohyun, CFO) The reversal of inventory valuation allowance was approximately 300 billion Korean won in the second quarter. As the pricing environment for DRAM and NAND is expected to remain favorable, further reversals are possible but expected to be minimal as the majority of the allowance has already been recognized and reversed.
Q: Given the rapid growth in HBM demand, why is SK Hynix taking a conservative stance on capacity increase?
A: (Kim Woohyun, CFO) Contrary to concerns, HBM demand has continued to exceed expectations. We have announced plans to more than double our TSP capacities to meet growing demand. We are carefully crafting our investment plans and capacity-related plans by reflecting downstream demand and supply chain situations. We expect shipments to more than double next year, with HBM3E 12-high product as our flagship.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
