SK Hynix with a 3.4 Trillion Deficit, Expected to Rebound in the Second Half

Q1 Earnings Conference Call Summary
Memory Prices Difficult to Rise in Q2
Demand Recovery Expected in Second Half
"US Positive on Export Control Exemption for Chinese Equipment"

SK Hynix, which recorded its worst performance due to the prolonged downturn in the memory semiconductor market, has expressed expectations for a rebound in the second half of the year. It forecasted that the effects of supply cuts by suppliers, which began last year, will become apparent, semiconductor inventory will peak in the second quarter, and demand will gradually recover.

SK Hynix announced on the 26th that it posted an operating loss of 3.4023 trillion won in the first quarter of this year, turning to a deficit compared to the first quarter of last year. It also continued its loss streak with an operating loss of 1.8984 trillion won in the fourth quarter of last year. The total deficit over two quarters exceeds 5 trillion won. During the same period, sales dropped 58.1% year-on-year to 5.0881 trillion won. The net loss was 2.5855 trillion won.

The poor performance was influenced by the ongoing memory semiconductor downturn that started last year. The memory downturn continued into the first quarter of this year, with weak memory demand and a trend of falling product prices.

Kim Woo-hyun, Vice President (CFO), said during the earnings conference call, "The supply-demand mismatch and resulting inventory levels currently experienced by the memory industry are more severe in degree and scale than at any time in the past." He added, "Due to such market conditions, even DRAM, which was believed to generate stable profits in the long term, suffered losses across the industry, and NAND flash is experiencing an even more severe situation."

SK Hynix stated that shipments of both DRAM and NAND flash decreased in the first quarter of this year, dropping about 20% and mid-teens by percentage respectively compared to the previous quarter. ASP (Average Selling Price) also fell by about the high teens percentage for DRAM and about 10% for NAND.

Although the company decided to reduce semiconductor investments and cut production starting last year to improve performance, the effects have not yet appeared. Vice President Kim explained, "Despite the production cuts, due to a sharp decline in sales volume in the first quarter, our finished product inventories of DRAM and NAND flash all increased compared to the previous quarter."

However, SK Hynix expects the semiconductor industry to pass the bottom in the first half and for market conditions to improve from the second half of the year.

Vice President Kim said, "We expect DRAM demand growth this year to be in the mid-to-high single digits, and NAND flash demand growth to be in the mid-to-high teens percentage range." He added, "There is also upside potential depending on the strength of demand recovery in the second half." He further noted, "In the second quarter, due to the base effect from the previous quarter, shipments of both DRAM and NAND are expected to increase by double digits, exceeding the decline seen in the first quarter."

Samsung Electronics' decision to cut production is also seen as positive. Park Myung-soo, Vice President in charge of DRAM marketing, said, "It is difficult to say that there has been a clear change in customer investment sentiment since Samsung Electronics' production cut decision, but there are some changes." He added, "In a situation where spot prices are at the bottom, we are receiving many inquiries about whether the market price will generally move toward stabilization."

SK Hynix forecasted that demand for high value-added memory semiconductors will increase due to the development of AI industries such as ChatGPT and the increased use of high-performance servers driven by the Fourth Industrial Revolution. Vice President Park stated, "AI server shipments and related memory growth rates could grow by more than 40% over the next five years," and "DRAM and NAND will grow by more than 30% in terms of value." He also expected that DDR5 high-capacity servers will increase more than sixfold compared to last year, and HBM will grow by more than 50% this year.

Meanwhile, regarding the Chinese factory amid the US-China semiconductor hegemony competition, Vice President Kim said, "It is currently operating without issues." He also expressed hope that the grace period granted to SK Hynix concerning the US ban on sales of advanced semiconductor equipment to China, which has been in effect since October last year, will be extended.

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