SK Hynix Focuses on Advanced Process Transition... Strategic Investment in HBM Next Year (Comprehensive)

Reduced Deficit by Over 1 Trillion Won in Q3
Minimized Increase in Next Year's CAPEX Compared to This Year

Focus on High-Value Products and Transition to Front-End Processes

SK Hynix, which succeeded in turning a profit in DRAM, announced its policy to strategically invest again next year to accelerate the pace of performance improvement. Instead of increasing total capital expenditures (CAPEX), the company plans to focus on transitioning to advanced processes and strengthen investments in high value-added core products such as High Bandwidth Memory (HBM). It expressed its ambition to enhance competitiveness in the HBM market, which is expected to grow rapidly by up to 80% annually over the next five years, through its latest product, HBM3E.

On the 26th, during the conference call following the Q3 earnings announcement, SK Hynix stated that it will increase CAPEX next year compared to this year but will minimize the increase. The company is increasing CAPEX this year to respond to AI memory demand but is reducing investments in other areas. It plans to cut this year’s CAPEX by more than 50% compared to last year (19 trillion KRW).

Next year, to maintain financial soundness, rather than increasing CAPEX scale, SK Hynix will focus on process transitions centered on DRAM 10nm 4th generation (1a) and 5th generation (1b). By the end of next year, the production share of 1a and 1b nanometer processes will account for more than half of the total. However, investments will be expanded in essential areas such as HBM and Through Silicon Via (TSV). TSV is an advanced packaging technology that drills thousands of tiny holes in DRAM chips to connect electrodes.

Regarding the production cuts that have continued since Q4 last year, the company intends to maintain the current stance for the time being. SK Hynix stated, "Considering that NAND inventory levels are higher than those of DRAM, NAND will maintain a conservative production stance for the time being." It also added, "Recovery of utilization rates will proceed gradually according to market conditions," and "It will take a considerable amount of time to reach the capacity level of Q4 last year."

In the case of DRAM, production cuts have focused more on DDR4 than the latest product, Double Data Rate (DDR)5, resulting in a crossover phenomenon in the supply side where DDR5's share of total DRAM surpassed DDR4 in the first half of the year. The company explained, "The DDR5 crossover on the demand side will also be important," and "From the supply side, DDR5 volumes have already been insufficient starting this quarter."

As of the end of Q3, inventory showed a meaningful decline compared to Q2. This was due to increased sales of high value-added products such as DDR5, Low Power Double Data Rate (LPDDR)5, and HBM. With demand increasing in the second half of the year and the effects of production cuts becoming more evident, SK Hynix expects inventory to significantly decrease by the end of the year. The company forecasted, "Inventory levels will normalize in the first half of next year, mainly for DRAM."

The HBM market size is expected to grow by 60-80% annually over the next five years. The company explained that the continuous increase in HBM demand and the rapid transition of HBM products contribute to the high market growth potential. This is the reason why they are conducting technology collaboration and capacity discussions with customers and partners not only for next year but also looking ahead to 2025. The share of HBM within the total DRAM market is expected to rise to the mid-to-high teens percentage next year.

SK Hynix stated, "Following the core product HBM3, we have started supplying HBM3E samples to customers," and explained, "Our HBM3E is world-class in all aspects, including speed, heat control, and customer usability." They also said, "The capacity for next year, including HBM3 and HBM3E, is already sold out at this point," and "We understand that our HBM3E capacity share is overwhelmingly high."

Meanwhile, the company expressed for the first time its disagreement with the merger between Japan's Kioxia and the US's Western Digital. It explained, "We have comprehensively considered the value invested in Kioxia," and "One thing is clear: we will make choices for the benefit of investors, Kioxia, and all stakeholders." SK Hynix indirectly holds shares in Kioxia and thus has voting rights related to this merger.

Regarding semiconductor equipment export regulations to China, the company said, "We recently received a 'VEU (Verified End User)' notification from the US government," and "This allows equipment import without separate export permits in the future, resolving uncertainties in Chinese operations." VEU refers to a comprehensive license method that permits exports of designated items to pre-approved companies.

The company explained, "The strategy for operating the China fab (factory) requires multifaceted review as it must comprehensively consider geopolitical situations, market demand, and long-term fab space needs," and "We are reviewing utilization plans considering available technologies, capacity mix, and customer demand." It added, "Future additional investments and operations will be decided while monitoring market conditions and the status of securing production facilities at headquarters."

SK Hynix recorded consolidated sales of 9.0662 trillion KRW in Q3. This is a 17.5% decrease compared to the same period last year but a 24.1% increase from the previous quarter. The Q3 operating loss was 1.792 trillion KRW, reducing the deficit by over 1 trillion KRW compared to Q2 (2.8821 trillion KRW), with an operating loss margin of 20%. The net loss was 2.1847 trillion KRW.

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