SK Hynix Inc.’s quarterly sales beat estimates, and the company declared surging interest in artificial intelligence was driving the beginnings of a recovery in the memory chip market.
The South Korean supplier to Apple Inc. and Nvidia Corp. now expects sales for its high-end DRAM chips to more than double this year to power storage-hungry AI applications. SK Hynix said it’s gearing up to push out more of those chips, even as the company vowed to continue to slash overall output.
The chipmaker’s sales came to 7.31 trillion won ($5.7 billion) in the June quarter, roughly half its revenue a year ago but soundly beating an average projection for 6.05 trillion won. Its operating loss came to 2.88 trillion won, in line with expectations.
“The worst has passed,” said Baik Gil-hyun, an analyst at Yuanta Securities Korea.
Shares in SK Hynix pared gains and were down around 1.5% Wednesday morning, amid a broader selloff on the Kospi Index.
Samsung Electronics Co., SK Hynix and Micron Technology Inc. have struggled for the better part of two years with a post-Covid collapse in demand for the memory chips essential to smartphones, servers and computers. This month, larger rival Samsung recorded its worst decline in quarterly sales in more than a decade, while sector bellwether Taiwan Semiconductor Manufacturing Co. cut its outlook and postponed production at its Arizona project to 2025, underscoring the depth of a global electronics market slump that set in after consumers and corporations trimmed spending to deal with a downturn.
SK Hynix recouped some of its losses since 2021 this year, gaining about 51% through Tuesday’s close on bets that output cuts and greater economic certainty might lift industry prices. Analysts including JP Morgan also cited the rollout of new high-bandwidth memory that works in tandem with AI hardware such as Nvidia graphics accelerators and data centers, which promise to speed up data processing for intensive tasks such as training AI.
“We are seeing increasing adoption of AI by major customers, and that makes us believe that a turnaround for memory is very near,” Sanjeev Rana, head of Korea Research at CLSA told Bloomberg TV.
SK Hynix will continue to invest to expand the production capacity of high-density DDR5 and HBM3 chips, Chief Financial Officer Kim Woohyun said. Sales for graphics DRAM including HBM chips accounted for about 20% of quarterly DRAM sales.
But overall demand for memory remains weak, SK Hynix warned. The company is sticking to its target to reduce capex by at least 50% compared to 2022 and said it’s cutting NAND production further.
The world’s No. 2 memory maker indicated recovery in its traditional sales drivers would be muted, although it said the effects of production cuts will materialize in the second half. SK Hynix said it expects overall server market demand to remain soft, with only a “subdued” recovery in mobile demand. NAND shipments will remain flat in the current quarter, it said.
Expectations of a recovery in the second half buoyed optimism about an end to an unprecedented slump that’s gripped the $160 billion global memory industry, which has been sitting on months’ worth of inventory. This year, Samsung and its peers cut output to try and stabilize memory prices.
Read more: Samsung Sales Fall Most in Over a Decade as Chip Slump Persists
It remains unclear when the industry — infamous for its boom and bust cycles — will climb out of its sales trough. Much may depend on a fundamental Chinese economic rebound, which remains uneven. A global boom in AI could also drive demand for data centers and servers, which rely on high-density memory chips for storage.
What Bloomberg Intelligence Says
SK Hynix’s strong sequential sales growth for its high-performance DRAMs for artificial-intelligence (AI) servers in 2Q — demand more than doubled sequentially for high-end DRAMs — could imply it will be a major beneficiary of generative AI. Although DRAMs’ contribution to operating profit is still small, they could generate a larger profit in 2024 due to better production yields.
- Masahiro Wakasugi, BI analyst
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Longer term, it’s unclear how a US-China conflict over technology and semiconductors might affect the industry. Beijing launched a security review of chips from Micron this year, spurring concerns the government there is taking a more aggressive stance toward foreign companies. The country is among Korea’s largest export destinations, and both a key market as well as a production base for companies from Samsung to SK Hynix.
SK Hynix and Samsung currently operate in China under a one-year waiver or license on equipment imports.
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--With assistance from Youkyung Lee and Edwin Chan.
(Updates with share reactions, executive and analyst comments)
