SK hynix's (000660.KS) first-quarter results signal a structural paradigm shift in the memory semiconductor industry, analysts said. While the first quarter is traditionally considered the memory industry's low season, this year proved an exception. Quarterly revenue surpassed the 50 trillion won mark for the first time, reaching 52.576 trillion won ($38.2 billion), while operating profit hit 37.61 trillion won ($27.3 billion).
Both figures are record highs since the company's founding. Securities analysts expect new performance records to be set with each passing quarter. According to financial information provider FnGuide, the consensus estimate for SK hynix's annual operating profit this year, based on the past month, reaches 230.0885 trillion won.
The record-breaking results are underpinned by structural demand expansion for memory driven by the onset of the artificial intelligence (AI) era. While some raised concerns about a "peak-out" in the industry cycle following short-term price gains, SK hynix clearly distanced itself from such views. Park Jun-deok, SK hynix's Vice President in charge of DRAM Marketing, said, "This price increase is not a temporary supply-demand imbalance but a structural change in the market," adding, "Given the limitations on meaningful production expansion in the short term, the memory price upcycle is likely to last longer than in the past."
Supply of high-bandwidth memory (HBM), the company's key revenue source, has already reached its limit. Kim Ki-tae, Vice President in charge of HBM Sales & Marketing at SK hynix, said, "HBM demand required of the company over the next three years far exceeds our supply capacity." In other words, three years' worth of HBM has been sold out.
The company also unveiled plans to supply HBM4E (7th generation) samples to customers in the second half and begin mass production next year to maintain market leadership. In particular, Kim said, "Considering the severe supply shortage of general DRAM, rather than simply pursuing revenue maximization, we are executing optimal allocation between HBM and general DRAM," making clear a profit maximization strategy through product mix adjustment.
The NAND flash division is also serving as a pillar of the earnings rebound by absorbing demand for high-performance storage. Song Chang-seok, Vice President in charge of NAND Marketing, said, "To maximize bit production, we plan to convert more than 50% of our domestic production to 321-layer products by year-end," outlining a policy to expand production of high value-added products.
Capital expenditure (Capex) to respond to the structural boom is also being aggressively rolled out. SK hynix reported in its business report last year that it invested 30.173 trillion won in capital expenditure. Kim Woo-hyun, Chief Financial Officer (CFO and Vice President), declared on the conference call, "This year's investment will increase significantly from the previous year to prepare future infrastructure and secure core equipment to respond to demand."
Investment is expected to focus mainly on ramping up M15X production, building the first fab in the Yongin general semiconductor industrial complex, securing extreme ultraviolet (EUV) equipment, and the Cheongju Package & Test 7 (P&T7) facility, which broke ground on the 22nd of this month. To respond to explosive demand, the clean room operation timing for the Yongin first fab was moved up three months to February next year from the original May. The plan is to expand investment scale to preemptively secure mid- to long-term supply capacity.
The current status of customers' long-term agreement (LTA) requests was also shared. Park said, "Customers recognize price and supply uncertainty as key risks, and requests to secure mid- to long-term volumes have significantly increased," adding, "Unlike in the past, we are reviewing various structural alternatives, but current supply constraints make it difficult to accommodate all requests." Accordingly, SK hynix plans to increase second-quarter DRAM shipments by the high single digits quarter-on-quarter and NAND shipments by the mid-teens, while concentrating available resources on high-profitability products.
The company dismissed as unfounded concerns in some market quarters about slowing memory demand. Regarding worries that the latest data compression technologies such as Google's "TurboQuant" would dampen memory demand, Song said, "This technology aims to use the same memory efficiently to provide more diverse AI services," and predicted, "Rather, it will serve as a catalyst that amplifies overall memory demand by enabling longer context processing and simultaneous inference."
The company also dispelled concerns about raw material supply disruptions stemming from geopolitical crises such as Middle East conflicts. CFO Kim explained, "For major industrial gases such as helium and bromine, we have already completed supply chain diversification and have sufficient inventory," adding, "There are no disruptions in tungsten supply either, so there is no impact on production." Regarding concerns about rising prices of liquefied natural gas (LNG), which is directly linked to power generation, he stressed, "We have secured supply through long-term contracts, so the impact of price fluctuations is limited."
