Chips are down for SK hynix as profits plummet

SK hynix headquarters in Icheon, Gyeonggi [YONHAP]

SK hynix posted an operating loss of 2.88 trillion won ($2.3 billion) in the second quarter due to a downturn in memory chip prices, leading it to announce a further production cutback in NAND flash chips.

The latest profit is slightly lower than the market projection of a 2.9 trillion won operating loss compiled by market tracker FnGuide.

Its net loss was 3 trillion, missing the market estimate of 2.8 trillion won.

The Icheon, Gyeonggi-based chipmaker posted sales of 7.3 trillion won in the April-June period, above the analysts’ expectations of 6.2 trillion won. The figure fell 47 percent on year.

The company anticipated that the rebound in sales could arrive earlier than expected thanks to robust demand for high-end memory chip ranges like high bandwidth memory (HBM) and Double Data Rate 5 (DDR5).

“Amid an expansion in the generative AI market, which has largely been centered on ChatGPT, demand for AI server memory has increased rapidly,” the company said. “As a result, sales of premium products such as HBM3 and DDR5 increased, leading to a 44 percent increase in revenue for the second quarter, while operating loss narrowed by 15 percent.”

Sales of both dynamic random access memory (DRAM) and NAND products increased in the second quarter. Although prices for general DRAM products such as DDR4 declined due to sluggish demand for PCs and smartphones, it was offset by the increased sales for memory chips supporting large-scale AI training.

The memory chipmaker now aims to expand sales of its DRAM products including HBM3, DDR5 and its low-power double data rate (LPDDR) offering LPDDR5, alongside 176-layer based solid-state drive (SSD) products.

Production for NAND flash memory chips, on the other hand, will be cut back due to large remaining inventories.

"We decided to further scale down the production for NAND flash memory chips by 5 to 10 percent because their inventories are larger than DRAM products and the business is not performing so well," Kim Woo-hyun, vice president and chief financial officer of SK hynix said on a conference call on Wednesday. "Thus we will further scale down on its production so that the chips' inventory levels can return to normal at a faster rate."

The remaining, scaled-down production will focus on its latest 238-layer NAND flash memory chips.

“Having passed the trough in the first quarter, the memory semiconductor market seems to have entered the recovery phase,” Kim said. “The company remains unchanged on the stance that it will reduce investment by 50 percent compared to last year. Cost efficiency in management will be used to invest in expanding production capacity of high-end DDR5 and HBM3 which will lead the memory chip market.”

SK hynix, which currently enjoys a leading position in the high bandwidth memory chip market, anticipates that the sixth-generation HBM4 will arrive by 2026 and it will develop the next-generation memory chip accordingly.

“SK hynix’s DRAM sector will recover rapidly to swing back into the black in the third quarter this year,” SK Securities’ analyst Han Dong-hee said. “Considering that the current HBM chip market is still based on HBM2, Samsung Electronics’ DRAM sector is also expected to swing back into the black in the fourth quarter this year as it gears up to enter the HBM3 chip market next year.”

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]