"Inventory Reduction and High-Capacity Memory Effect Expected"…SK Hynix Forecasts Q2 Sales Rebound (Comprehensive)

SK Hynix recorded operating losses for two consecutive quarters due to the semiconductor market downturn. SK Hynix expects market recovery signals such as inventory reduction starting from the second quarter after hitting the bottom in the first quarter. With the server market expanding thanks to the ChatGPT effect, the company plans to focus on high-capacity memory sales and aims for a full-scale turnaround in the second half of the year.

SK Hynix announced on the 26th that its first-quarter sales this year were 5.0881 trillion won, down 58% from the same period last year. The operating loss in the first quarter was 3.4023 trillion won. Following the operating loss of 1.8984 trillion won in the fourth quarter of last year, this marks two consecutive quarters of losses. The operating loss ratio was 67%, and the net loss was 2.5855 trillion won.

SK Hynix explained the background of the performance decline, stating, "The memory semiconductor downturn situation continued in the first quarter, leading to weak demand and a trend of falling product prices." They described the situation as 'IT demand decline → oversupply → inventory increase → price drop → performance decline,' which began in earnest in the second half of last year due to the market downturn.

M16 exterior view at SK Hynix Icheon campus / Photo by SK Hynix

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In fact, memory prices have been declining since last year. According to market research firm DRAMeXchange, the fixed transaction price of DRAM (PC DDR4 8Gb 1Gx8) was $1.81 as of last month, having sharply dropped in January and failing to recover since. NAND (memory card/USB 128Gb 16Gx8 MLC) prices also fell 5.12% from the previous month to $3.93.

SK Hynix holds the view that performance could improve in the second quarter. They forecast, "Sales volume will gradually increase after bottoming out in the first quarter, leading to a rebound in sales performance in the second quarter." Following the reduction of customer inventory in the first quarter, suppliers are expected to reduce inventory in the second quarter, which could balance market supply and demand. They also anticipate a full-scale market improvement in the second half of the year.

SK Hynix expects that as the AI server market, including ChatGPT, grows, demand for high-capacity memory used in servers will also increase. The company plans to focus sales on high-performance DRAM such as server-grade Double Data Rate (DDR)5 and High Bandwidth Memory (HBM), as well as solid-state drives (SSD) based on 176-layer NAND, aiming to increase sales.

During the conference call held on the same day, SK Hynix stated, "AI server shipments and related memory growth rates could grow by more than 40% annually over five years," and "DRAM and NAND-related memory will grow by more than 30% in terms of value." They also projected, "High-capacity DDR5 servers will increase more than sixfold compared to last year, and HBM sales will grow by more than 50%. Similar growth is expected next year." They added that most related orders have already been secured.

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Investment in the latest memory products will continue. SK Hynix had previously announced plans to reduce capital expenditures (CAPEX) by 50% from last year's 19 trillion won. However, they stated they will not spare investment in memory products used in industries leading market changes such as AI. They plan to invest in mass production preparation centered on more cost-competitive processes such as 10-nanometer 5th generation (1b; 1b is a fine process generation developed in the order of 1x-1y-1z-1a-1b) DRAM and 238-layer NAND to respond quickly when market conditions improve.

Kim Woo-hyun, SK Hynix Chief Financial Officer (CFO), said, "The memory market environment is still difficult, but it seems to be bottoming out now," adding, "We believe the market will soon find a supply-demand balance point, and we will do our best to restore corporate value by focusing on profitability improvement and technology development."

According to the average earnings forecast compiled by financial information firm FnGuide, SK Hynix's operating loss forecast for the second quarter is 3.3282 trillion won. The sales forecast is 5.11 trillion won, shrinking 63% from the same period last year.

Meanwhile, regarding the recent increase in risks related to its China business, SK Hynix stated during the conference call, "We are comprehensively reviewing future China operations considering long-term geopolitical risks, market demand, and fab operational efficiency." They added, "Currently, there are no particular changes related to China fab operations," and "We view the U.S. semiconductor equipment export control waiver positively and will make efforts accordingly."

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