[Concall] SK Hynix "Server Product Growth Accelerates Due to COVID-19" (Summary)

"Establishing a Close Cooperation System and Exploring Response Measures with Partners and Clients in Preparation for the Prolonged COVID-19 Situation"

[Asia Economy Reporter Ki-min Lee] SK Hynix announced in its Q1 earnings conference call on the 23rd that "despite the rapid external environmental changes caused by the novel coronavirus disease (COVID-19), sales and operating profit for Q1 increased by 4% and 239% respectively compared to the previous quarter, thanks to increased sales of server products, yield improvement, and cost reduction."

Regarding the favorable Q1 performance, SK Hynix attributed it to the increased 'non-face-to-face demand' due to COVID-19. Jin-seok Cha, SK Hynix’s Chief Financial Officer (CFO), explained, "Many people have experienced remote systems through COVID-19, and governments and companies are accelerating cloud-based systems."

He also stated, "Compared to other products such as mobile, server semiconductors have relatively lower demand risk caused by COVID-19," adding, "Additional demand has arisen from support for non-face-to-face work environments and streaming services, and data center companies are resuming investments." He forecasted, "As a result, the growth momentum of server-centric products is likely to accelerate in the mid to long term."

Regarding the outlook that server semiconductor demand might deteriorate as COVID-19 prolongs, he acknowledged, "It is true that there is significant uncertainty in all application areas, including servers and smartphones," but added, "We believe the mid to long-term growth trend is solid, and we plan to focus on high-capacity server products." He further stated, "We will minimize risks caused by COVID-19," and "We are fully committed to technological innovation and infrastructure preparation to respond promptly when growth momentum centered on 5G and servers arrives."

On concerns about supply disruptions of equipment and parts, he explained, "No significant disruptions have occurred through Q1." He continued, "If the situation prolongs, there is a possibility of actual disruptions in the second half of this year," and added, "We are establishing close cooperation systems with partners and customers to devise countermeasures."

SK Hynix plans to increase the proportion of 96-layer NAND flash products in Q2 and start mass production of 128-layer products. The SSD sales ratio, which reached 40% in Q1, will be further expanded, and the portfolio will be diversified focusing on data center-oriented PCIe SSDs. SK Hynix stated, "Profitability has improved due to yield increases in 96-layer NAND flash," and added, "NAND supply and demand conditions are highly variable and difficult to predict, but if the current trend continues, the company expects to surpass the breakeven point in Q4 as originally intended."

For DRAM, SK Hynix plans to expand production of high-capacity server modules of 64GB or more and improve profitability by increasing sales of 10nm-class 2nd generation (1Y) mobile DRAM. The 10nm-class 3rd generation (1Z) products will be mass-produced in the second half of the year, and production of GDDR6 and HBM2E will be increased to expand graphic DRAM sales by more than 50% compared to last year.

Regarding DRAM and NAND flash inventory, SK Hynix said, "DRAM inventory is expected to decrease to early 2-week levels in Q2 compared to Q1," and "NAND flash inventory at the end of Q1 was below 4 weeks, and further reduction is expected in Q2." They also forecasted, "Most customer price and volume negotiations for Q2 have been completed, so there will be little impact."

SK Hynix maintains its existing plan to reduce capital expenditures compared to last year. CFO Cha said, "In Wuxi, China, equipment was brought in after building the expansion fab, and operations started last year with additional equipment currently being installed," and added, "The cleanroom at Icheon M16 is scheduled to be completed by the end of this year. There has been no change from the original plan."

Meanwhile, SK Hynix announced on the 23rd that on a consolidated financial statement basis, it recorded sales of KRW 7.1989 trillion and operating profit of KRW 800.3 billion in Q1. SK Hynix’s sales increased by 6.3% compared to Q1 2019 (KRW 6.7727 trillion) and by 3.9% compared to the previous quarter (KRW 6.9271 trillion). Operating profit decreased by 41.4% compared to the same period last year (KRW 1.3665 trillion) but surged by 239% compared to the previous quarter (KRW 236 billion).

This content was produced with the assistance of AI translation services.