SK Hynix Turns NAND Profit Positive in Q1
Memory Product Prices Rise by Double Digits
Positive Outlook for Second Half Including Q2
Cautious on NAND Utilization Rate Increase Compared to DRAM
SK Hynix's first-quarter earnings surprise was largely driven by the expansion of artificial intelligence (AI) demand not only for DRAM but also for key memory semiconductor products such as NAND flash. The outlook is encouraging as the trend of rising memory prices is expected to continue into the second quarter, along with increased demand for high-value AI products like high-bandwidth memory (HBM), leading to a continued growth in performance.
SK Hynix explained that the average selling price (ASP) of DRAM in the first quarter rose by more than 20% compared to the previous quarter, while NAND ASP increased by over 30%, resulting in improved earnings due to the rise in memory prices. This was the background for NAND turning profitable this quarter following DRAM. Additionally, AI demand drove performance as sales of AI memory products such as HBM and enterprise solid-state drives (SSD) based on NAND used in AI servers increased.
Kim Woo-hyun, Chief Financial Officer (CFO) of SK Hynix, said, "We have begun to see a rebound based on our global No. 1 AI memory technology centered on HBM. Moving forward, we will continue to improve performance by supplying top-performing products in a timely manner and maintaining a profitability-focused management approach."
SK Hynix expects the market to enter a full recovery phase. From the second half of the year, demand from traditional applications such as PCs, mobile devices, and general servers is expected to increase, leading to a stable growth trend in memory demand. In particular, as AI adoption expands to applications like PCs and mobile devices, related demand is anticipated.
CFO Kim stated, "On the supply side, despite gradual recovery in utilization rates by manufacturers, production of premium products such as HBM is expanding, which limits general DRAM production and accelerates inventory depletion. As a result, a favorable pricing environment will continue, and the memory market size this year could reach levels comparable to past booms."
The market expects SK Hynix to continue its earnings growth in the second quarter. According to a compilation of securities firms' forecasts by financial information provider FnGuide, the company's second-quarter sales are projected at KRW 14.4748 trillion, representing a 98.12% increase year-on-year. Operating profit is expected to be KRW 3.1915 trillion.
Price increases for key products are also anticipated. Market research firm TrendForce forecasts that DRAM prices will rise by 3-8% in the second quarter compared to the previous quarter. NAND prices are also expected to increase by 13-18% in the second quarter. In particular, prices for enterprise SSDs, used in AI servers, are projected to rise by 20-25%.
SK Hynix expects DRAM shipments to increase by the mid-teens percentage compared to the previous quarter in the second quarter due to the sales effect of products such as HBM3E. The company began mass production last month after supplying HBM3E to Nvidia in the United States. NAND shipments are expected to remain at similar levels to the previous quarter. However, the company is focusing efforts on responding to the clear improvement in demand for enterprise SSDs.
Looking ahead, the company plans to strengthen its leadership in the high-capacity server DRAM market by developing next-generation products such as HBM4 and launching 32-gigabit (Gb) DDR5 DRAM based on the 10-nanometer 5th generation (1b) process within the year. As demand for advanced process products such as AI memory increases, upgrade investments will also be made. During the conference call, the company stated that the HBM3E 12-stack product is scheduled to complete development in the third quarter of this year according to customer requests, undergo customer certification, and be supplied next year.
However, with capacity allocation concentrated on some products like HBM, overall DRAM and NAND production growth is expected to be limited this year. The company explained that if product demand for general DRAM increases around the second half of the year, utilization rates could recover rapidly. For NAND, although AI demand exists, demand improvement in general applications is not yet as clear as for DRAM, so the company plans to carefully decide on utilization rate recovery.
This year's capital expenditure (CAPEX) will increase somewhat compared to the initial plan due to responding to HBM demand and investment in the new Cheongju M15X fab. SK Hynix executed approximately KRW 8.3 trillion in CAPEX last year. Although this year's CAPEX scale will increase compared to last year, the company announced in January that it would minimize the increase focusing on demand response. The company has also announced a $3.87 billion investment to introduce advanced packaging facilities in Indiana, USA, to meet HBM demand.
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