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SK Hynix Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Interest bearing debt decreased by KRW 6.8 trillion from the previous year to KRW 22.7 trillion.
- The company expects a strong surge in replacement demand in 2024.
- The company expects the penetration of AI-enabled smartphones to grow to approximately 30%, driving demand for higher contents, as well as higher performance mobile memory, like LPDDR5X and LPDDR5T.
- The company expects positive developments on set demand in 2024 due to the inclusion of smartphones and tablets to China's consumer subsidies.
- The commodity memory market is expected to show a weak pricing trend in the short term due to the influence of slow seasonal demand in H1 and inventory adjustment by customers.
- NAND has been more significantly affected by demand slowdowns in traditional applications, and some suppliers have already announced production cuts.
- The company anticipates that the commodity memory market will show a weak pricing trend in the short term due to the influence of slow seasonal demand in H1 and inventory adjustment by customers.
- The company anticipates that the commodity memory market will show a weak pricing trend in the short term due to the influence of slow seasonal demand in H1 and inventory adjustment by customers.
- The company expects to leverage its experience with the advanced MR-MUF process, which was first applied in HBM3, to mass produce HBM4 16Hi products.
- The company expects NAND to experience a milder correction compared to previous downturns.
- The company expects to continue its flexible investment and production strategies to focus on profitability.
Q&A Highlights from SK Hynix Inc Earnings Call Q4 2024
- Analyst asked about the company's view on the memory market for 2023 and whether the current price decline is a short-term adjustment or a correction similar to 2023.
- The company expects a continued weak pricing trend in the short term due to slow seasonal demand and inventory adjustment by customers. However, they predict that there will be a continuous growth in the HBM AI memory market, while the conventional DRAM market will go through a gradual smooth correction. The company also anticipates a milder correction for NAND compared to previous downturns, but the pace of market recovery will depend on supply adjustment and demand rebound.
- The company expects a continued weak pricing trend in the short term due to slow seasonal demand and inventory adjustment by customers. However, they predict that there will be a continuous growth in the HBM AI memory market, while the conventional DRAM market will go through a gradual smooth correction. The company also anticipates a milder correction for NAND compared to previous downturns, but the pace of market recovery will depend on supply adjustment and demand rebound.
- Analyst asked about the company's preparation stages for HBM4, specifically when production will start and when shipments to customers will begin.
- The company is developing HBM4 based on the proven 1b nanometer technology, aiming to complete development and be ready for ramp up by the second half of 2023. HBM4 supply will begin with 12Hi products, followed by 16Hi products based on customer demand, and shipments are expected in the second half of 2024. The company plans to leverage its experience with the advanced MR-MUF process to enhance performance and power efficiency, and collaborate with TSMC to use logic foundries for the base die.
- The company is developing HBM4 based on the proven 1b nanometer technology, aiming to complete development and be ready for ramp up by the second half of 2023. HBM4 supply will begin with 12Hi products, followed by 16Hi products based on customer demand, and shipments are expected in the second half of 2024. The company plans to leverage its experience with the advanced MR-MUF process to enhance performance and power efficiency, and collaborate with TSMC to use logic foundries for the base die.
- Analyst asked about the possibility of reducing planned CapEx and the breakdown of investment for infrastructure versus fab investment in 2024.
- The company plans to have a slight increase in investment compared to 2023, driven by HBM investment and the construction of M15X and Yong-in fab. The investment will be prioritized on products with proven profitability and guided by principles of responding to market changes with agility and flexibility. The majority of the investment in 2024 will be concentrated on HBM and infrastructure, with infrastructure investment expected to increase significantly compared to 2023. The company will continue to optimize resource allocation for each product, expand FCF, and maximize investment efficiency by prioritizing technology transitions and seizing growth opportunities through agile market responses.
- The company plans to have a slight increase in investment compared to 2023, driven by HBM investment and the construction of M15X and Yong-in fab. The investment will be prioritized on products with proven profitability and guided by principles of responding to market changes with agility and flexibility. The majority of the investment in 2024 will be concentrated on HBM and infrastructure, with infrastructure investment expected to increase significantly compared to 2023. The company will continue to optimize resource allocation for each product, expand FCF, and maximize investment efficiency by prioritizing technology transitions and seizing growth opportunities through agile market responses.
- Analyst asked about the demand for server DDR5 and the assessment of hyperscale customers' DRAM inventory level.
- Hyperscale customers have continuously expanded investment to secure high-performance computing infrastructure, and AI servers have also exhibited strong demand growth. Investment in conventional servers has also been made alongside in tandem, ensuring robust server DRAM demand this year following last year. The replacement cycle of servers where a massive investment was made in 2017 and 2018 has led to a growing emphasis on efficient space utilization and high energy efficiency. This year, there will be a strong surge in replacement demand, and DDR5 demand is expected to remain very strong due to the ramping up of new CPUs that support DDR5 and customers holding low DDR5 inventory levels. The company doesn't have a serious concern about potential slowdown in DDR5 demand and will continue to secure its leadership in the server market by proactively addressing the demand for high performance, high density server DRAM modules.
- Hyperscale customers have continuously expanded investment to secure high-performance computing infrastructure, and AI servers have also exhibited strong demand growth. Investment in conventional servers has also been made alongside in tandem, ensuring robust server DRAM demand this year following last year. The replacement cycle of servers where a massive investment was made in 2017 and 2018 has led to a growing emphasis on efficient space utilization and high energy efficiency. This year, there will be a strong surge in replacement demand, and DDR5 demand is expected to remain very strong due to the ramping up of new CPUs that support DDR5 and customers holding low DDR5 inventory levels. The company doesn't have a serious concern about potential slowdown in DDR5 demand and will continue to secure its leadership in the server market by proactively addressing the demand for high performance, high density server DRAM modules.
- Analyst asked about SK hynix's status of 1c nanometer development and plans for expanding investment.
- SK hynix has completed the development of 1c nanometer product in the second half of 2023 and built potential for mass production. The company's 1c nanometer-based DDR5 product supports maximum operating speed of 9.2 giga bps, approximately 28% faster than the previous generation, with over a 9% improvement in power efficiency. SK hynix will begin applying 1c nanometer to ramp up conventional DRAM products starting from the second half, and a significant portion of investment this year will focus on HBM and infrastructure. The company will keep a close eye on future demand and supply dynamics to make the right investment decisions for ramp-up.
- SK hynix has completed the development of 1c nanometer product in the second half of 2023 and built potential for mass production. The company's 1c nanometer-based DDR5 product supports maximum operating speed of 9.2 giga bps, approximately 28% faster than the previous generation, with over a 9% improvement in power efficiency. SK hynix will begin applying 1c nanometer to ramp up conventional DRAM products starting from the second half, and a significant portion of investment this year will focus on HBM and infrastructure. The company will keep a close eye on future demand and supply dynamics to make the right investment decisions for ramp-up.
- Analyst asked about SK hynix's additional plan for NAND production cut.
- SK hynix has cut production mainly in legacy technologies while increasing wafer production in 2024 to meet rising eSSD demand. The company has maintained limited production for products other than enterprise SSD considering the delayed recovery of demand in general applications. Moving forward, SK hynix will continue to maintain current approach and flexibly adjust production, in line with market conditions and will focus on normalizing inventory levels.
- SK hynix has cut production mainly in legacy technologies while increasing wafer production in 2024 to meet rising eSSD demand. The company has maintained limited production for products other than enterprise SSD considering the delayed recovery of demand in general applications. Moving forward, SK hynix will continue to maintain current approach and flexibly adjust production, in line with market conditions and will focus on normalizing inventory levels.
- Analyst asked about the timeline for finalizing HBM supply volumes for 2026 and whether the strong growth trend of HBM will be sustained in the future.
- The company has already initiated discussions with some customers regarding HBM supply volumes for 2026 and expects to gain visibility for most of the next year's volumes by the first half of 2025. The company aims to enhance business stability and visibility by securing a long-term contract through a proactive negotiation with customers. The AI market holds significant growth potential, driven by advancements in learning and inference technologies, as well as the integration of AI services across different industries. The company expects the sustained long-term growth of HBM demand due to the accelerating industry transformation and high computing demand.
- The company has already initiated discussions with some customers regarding HBM supply volumes for 2026 and expects to gain visibility for most of the next year's volumes by the first half of 2025. The company aims to enhance business stability and visibility by securing a long-term contract through a proactive negotiation with customers. The AI market holds significant growth potential, driven by advancements in learning and inference technologies, as well as the integration of AI services across different industries. The company expects the sustained long-term growth of HBM demand due to the accelerating industry transformation and high computing demand.
- Analyst asked about the significant non-operating profit recorded in the sales performance and the factors that influenced it.
- The company's subsidiary SK hynix system held a 100% stake in system ic Wuxi and completed the process of converting the system ic Wuxi into a joint venture last November. During this process, some of the company's stakes were divested, resulting in approximately KRW 1.3 trillion in gain and recognized as non-operating income in Q4. Additionally, Kioxia went public in December, and the company's investment assets in Kioxia were reevaluated to reflect the year-end closing price, resulting in an evaluation loss of approximately KRW 200 billion. The rising exchange rate also resulted in a net foreign exchange gain of approximately KRW 600 billion. Overall, the total non-operating profit for Q4 amounted to about KRW 1.5 trillion.
- The company's subsidiary SK hynix system held a 100% stake in system ic Wuxi and completed the process of converting the system ic Wuxi into a joint venture last November. During this process, some of the company's stakes were divested, resulting in approximately KRW 1.3 trillion in gain and recognized as non-operating income in Q4. Additionally, Kioxia went public in December, and the company's investment assets in Kioxia were reevaluated to reflect the year-end closing price, resulting in an evaluation loss of approximately KRW 200 billion. The rising exchange rate also resulted in a net foreign exchange gain of approximately KRW 600 billion. Overall, the total non-operating profit for Q4 amounted to about KRW 1.5 trillion.
- Analyst asked about the company's assessment of the technological capabilities of Chinese DRAM companies and whether they can enter the DDR5 and HBM market.
- The company believes that Chinese DRAM manufacturers are significantly behind the advanced nodes used by major leading suppliers, and they will face heightened uncertainties in developing advanced nodes and technologies. The company is focused on developing advanced nodes, high-performance products, and AI memory products, including HBM, to maintain a strong lead over competitors.
- The company believes that Chinese DRAM manufacturers are significantly behind the advanced nodes used by major leading suppliers, and they will face heightened uncertainties in developing advanced nodes and technologies. The company is focused on developing advanced nodes, high-performance products, and AI memory products, including HBM, to maintain a strong lead over competitors.
