SK Hynix, Untact Beneficiaries 'DRAM·NAND' Soar (Comprehensive)

Q2 Earnings Surprise for SK Hynix
Strong Q2 Performance Driven by Untact Benefits and Significant Rise in DRAM and NAND Prices

[Asia Economy Reporters Changhwan Lee and Gimin Lee] SK Hynix's second-quarter earnings this year exceeded market expectations due to a surge in server demand driven by the growth of the non-face-to-face market amid the spread of the novel coronavirus disease (COVID-19), which led to an increase in semiconductor prices. In particular, the strong prices of D-RAM, which accounts for 73% of SK Hynix's total sales, were evaluated as a key factor.

According to market research firm DRAMeXchange on the 23rd, the fixed transaction price of DDR4 8Gb D-RAM products, mainly used in PCs, rose from $2.84 in January to $2.94 in March, $3.29 in April, and $3.31 in June. Accordingly, SK Hynix's second-quarter average selling price (ASP) of D-RAM increased by 15% compared to the previous quarter, while shipments rose by 2%.

In the second quarter, as COVID-19 spread, non-face-to-face demand such as remote work, online classes, and meetings increased, leading to semiconductor inventory accumulation by server and PC companies, which caused D-RAM prices to rise. Jinseok Cha, SK Hynix's Chief Financial Officer (CFO), explained, "Although demand from mobile customers remained sluggish, sales of server and graphics-related D-RAM products, which had relatively steady demand and prices, increased, contributing to improved performance."

NAND flash, which accounts for 24% of SK Hynix's total sales, also contributed to performance improvement as prices rose. The NAND flash ASP in the second quarter increased by 8% compared to the previous quarter, and shipments grew by 5%. SK Hynix had reduced production of some products last year due to NAND flash price declines and market contraction.

However, in the first half of this year, supported by the expansion of non-face-to-face demand and the spread of 5G mobile communications, sales of solid-state drives (SSD) for servers increased significantly, and the business entered a recovery phase. SSDs are data storage devices made from NAND flash and are used in servers, PCs, and gaming consoles.

SK Hynix's NAND flash business operating profit margin in the second quarter is estimated to have improved significantly to around -4% from -20% in the previous quarter. Overall SSD demand is expected to increase substantially this year, raising hopes for a return to profitability in the second half. Market research firm Omdia forecasts the global SSD market size to reach $32.6 billion this year, a 41% growth compared to last year, with the consumer SSD market expanding by 54% to $16.1 billion.

Jungtae Kim, SK Hynix's NAND marketing manager, explained, "In response to the increased SSD sales driven by the spread of non-face-to-face activities, the proportion of SSDs in the NAND flash business approached 50% for the first time."

Although SK Hynix achieved surprising results exceeding market expectations in the second quarter following the first quarter, uncertainties remain for the second half of the year. The recent stagnation in the semiconductor price rise trend is a major uncertainty factor.

According to DRAMeXchange, the spot price of DDR4 8Gb D-RAM was $2.64 as of the previous day, having peaked at the $3.60 range in early April and declined for more than three months. This is interpreted as a decrease in demand due to customers reducing orders after accumulating semiconductor inventories in the first half.

The decline in spot prices is expected to lead to a drop in fixed prices in the future. Since SK Hynix trades semiconductors at fixed prices, a decline in fixed prices directly impacts profit reduction.

DRAMeXchange expects fixed prices for D-RAM and NAND flash to turn downward in the third quarter. For server D-RAM, which has high inventory, the fixed transaction price in the third quarter is expected to fall by more than 5% compared to the previous quarter, and PC D-RAM is also forecasted to decline by about 5%.

Myeongsu Park, SK Hynix's D-RAM marketing manager, said, "Currently, we see an inevitable adjustment in D-RAM ASP in the second half of this year," but added, "In the mid to long term, we believe the memory semiconductor growth trend remains solid, and the market will return to an upward trend after bottoming out in the second half."

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