SK hynix profits soar on AI chip boom

SK hynix, the world's second-largest memory chip maker, said Thursday it has returned to profit, thanks to its leadership in advanced memory chips critical to generative artificial intelligence tools, recovering from a long slump in the memory market.

The company reported a quarterly operating income of 2.89 trillion won ($2.10 billion) for the January-March period, compared with a loss of 3.4 trillion won marked a year ago. The figure is far higher than the consensus of 1.86 trillion won by local analysts provided by market intelligence FnGuide.

This is the first time in six quarters that SK hynix has recorded a trillion-unit operating profit and it is the second-highest quarterly operating profit for the first quarter, following the record of the first quarter of 2018.

Its net profit came to 1.92 trillion won, turning from a loss of 2.59 trillion won a year ago.

SK hynix attributed the larger-than-expected first-quarter profit to an increase in the sales of AI server products backed by its leadership in AI memory technology, including High Bandwidth Memory, and continued efforts to prioritize profitability.

Sales also jumped 144.3 percent on-year to 12.42 trillion won, marking a record high for the first quarter. The sales figure also beat the analysts’ average estimate of 12.16 trillion won.

With the sales ratio of eSSD, a premium product, on the rise and the average selling prices rising, the NAND business has also achieved a meaningful turnaround in the same period. SK officials further suggested a rosy outlook on its NAND business for the following quarter.

With these meaningful quarterly results, SK hynix believes that it has entered the phase of a clear rebound following a prolonged downturn.

“With the industry’s best technology in the AI memory space led by HBM, we have entered a clear recovery phase,” Chief Financial Officer Kim Woo-hyun said. “We’ll continue to work towards improving our financial results by providing the industry’s best-performing products at the right time and maintaining the profitability-first commitment.”

During the company’s earnings call held earlier in the day, SK officials forecast that the overall memory chip market will grow steadily in the coming months as demand for AI memory continues to rise, while the conventional DRAM market will also start to recover from the April-June period.

It is expected that the overall memory inventory level will decrease significantly by the end of the year. “Inventory of finished memory products at the end of the first quarter decreased for both DRAM and NAND as sales volume exceeded production despite conservative sales,” an SK hynix official said.

The memory chipmaker plans to increase the supply volume of HBM3E chips, the next-generation top-performing DRAM for AI applications that was mass-produced for the first time in the industry, while expanding the customer base.

The company will also introduce 32 gigabits DDR5 products based on the 1bnm process, the fifth generation of the 10-nanometer technology, within this year to strengthen its leadership in the high-capacity server DRAM market.

On Wednesday, SK hynix announced its plan to invest more than 20 trillion won to ramp up DRAM production by building the M15X fab in Cheongju, North Chungcheong Province, in response to the rapidly increasing demand for AI chips.

Along with the M15X fab, the company plans to push ahead with other domestic investments as planned, including the Yongin Semiconductor Cluster where it will spend approximately 120 trillion won. The company will also continue its overseas investments with advanced packaging facilities in Indiana.

“We’re gradually reviewing production investment plans for the memory market to respond with flexibility in the rapidly changing market. For this reason, the investment scale for 2024 is expected to slightly increase than our initial plan set at the beginning of the year,” Kim said in the earnings call.

“We’ll continue to make investment decisions by prioritizing our leadership and essential investments with a focus on competitive products and considering our cash-generating ability. We look to pursue a balance between investing for future growth and securing financial soundness.”