Demand for AI is booming, and the revenue of SK Hynix, the world's second-largest memory chip manufacturer, soared in the first quarter. At a time when the memory chip market is fully recovering, this year's capital expenditure will be slightly higher than planned, and the supply of HBM3E chips will be increased to attract more customers.
On April 25, SK Hynix released its financial report for the first quarter of the 2024 fiscal year (ending March 31, 2024). Both revenue and profit for the first quarter were higher than expected. Revenue reached 12.4296 trillion won, more than doubling, reaching a record high for the same period.
According to the financial report, with its core HBM storage system's technical leadership, operating profit for the first quarter reached 2.886 trillion won, a year-on-year increase of 734%, far higher than analysts' expectations of 1.8 trillion won, the second highest level since 2018. The operating profit margin for the first quarter was 23%, the net profit margin was 15%, and the gross margin was 39%.
Driven by computing power, the advantages of HBM memory are prominent. In the AI era, Hynix is actively expanding production around HBM and announced mass production of a new generation of HBM3E high-bandwidth memory chips in March. It said on Friday that it has signed an agreement with TSMC to cooperate in the production of the next generation of high-bandwidth memory HBM4 chips.
Considering the planned large-scale investment, SK Hynix expects this year's total capital expenditure to exceed the original 2024 plan, in addition to plans to increase investment to meet growing customer demand. SK Hynix will also increase traditional DRAM supply according to market trends, which is expected to drive steady growth in the global memory market and enhance the company's investment efficiency and financial soundness.
Kim Woohyun, the company's chief financial officer, said: “With the best technology in the HBM sector, we have entered a significant recovery phase. We remain committed to delivering the best performing products in the industry at the right time and maintaining a profit priority to improve financial performance.”
As of press release, SK Hynix is down 2.8%. Since this year, SK Hynix's stock price has risen by more than 22.6%.
Demand for HBM soars
SK Hynix emphasized in its financial report that due to the technical leadership of HBM storage systems, sales of the company's AI server products increased and profitability steadily increased, which led to a sharp increase of 734% month-on-month in operating profit. As demand for AI memory continues to grow, the traditional DRAM market is expected to recover from the second half of the year, and the overall memory market will maintain steady growth in the coming months.
SK Hynix decided to increase the supply of HBM3E, which was first mass-produced in March, and expand its customer base of 32Gb DDR5 products based on the fifth-generation 10 nm process (1bnm) to consolidate its leading position in the high-capacity server DRAM market. It is expected that the quarterly increase in DRAM B/G in the second quarter will be in the middle of the 10%-20% range.
Three-dimensional stacked High Bandwidth Memory (High Bandwidth Memory) takes into account both bandwidth and capacity. Compared with other memories, it has the three characteristics of high bandwidth, low power consumption, and small area, which perfectly fits the requirements of large models. Analysts pointed out that as an “essential material” for the future AI era, although HBM does not have a large share in the memory market, its profitability is 5 to 10 times that of other DRAM
As far as NAND flash memory is concerned, the financial report emphasizes that as the share of sales of high-end eSSD products has increased, and the average selling price (ASP) has also increased, successfully turning a loss into a profit is of great significance to the company.
On the NAND side, it will further promote product optimization and maintain the profit recovery trend. On the one hand, it will vigorously increase sales of 16-channel ESSD (the company has a technical advantage) and its US subsidiary Solidigm high-capacity ESSDs based on QLC, and will launch the fifth generation PCIe cSSD for AI computers as soon as possible, with an optimized product lineup to respond to market demand.
HBM is in short supply, and Hynix is actively expanding production
Currently, only SK Hynix, Samsung Electronics, and Micron can provide HBM chips. These chips can be paired with powerful GPUs, such as Nvidia's H100 system, for AI computing. The HBM market size is US$4 billion in 2023, and is expected to grow to US$15 billion in 2024, to nearly US$25 billion by 2026, with a compound annual growth rate of over 80%.
SK Hynix is the leader in the HBM field. Trendforce Jibang Consulting estimates that SK Hynix may receive 52.5% of the global market this year, followed by Samsung (42.4%) and Micron (5.1%).
After SK Hynix and TSMC announced their cooperation, TSMC's advanced packaging technology helped HBM chips and graphics processing units (GPUs) work efficiently together, further expanding SK Hynix's market share.
At the beginning of April, SK Hynix announced that it will spend 3.87 billion US dollars to establish an advanced packaging plant and artificial intelligence product development center in West Lafayette, Indiana.
Prior to the release of the financial report, SK Hynix plans to invest about 20 trillion won (US$14.6 billion) to establish an advanced memory chip factory in Cheongju, South Korea to expand production capacity for next-generation DRAM, including HBM, to meet rapidly growing AI demand.
The company will invest approximately KRW 5.3 trillion to build the M15X fab as a new DRAM production base, with the goal of completion in November 2025 and mass production as soon as possible. As equipment investment plans gradually increase, the total investment for the construction of a new production site will exceed 20 trillion won in the long term.