SK hynix, leading the global high bandwidth memory (HBM) market, achieved a quarterly operating profit of over 9 trillion won in the second quarter of this year, setting a record for its highest performance ever. The HBM, which has a higher profit margin compared to general memory semiconductors, accounted for more than 40% of total sales, leading to an operating profit margin of 41%.
However, concerns about 'over-dependence' are raised as the share of HBM in the total operating profit exceeds half. As excess supply of HBM is anticipated starting in the second half of this year and into next year, analysts suggest that if the selling price of HBM begins to fall, it could put a halt to SK hynix's performance streak. Currently, the competitor Micron is expanding its HBM production lines around the world, and Samsung Electronics is expected to enhance its production capacity starting with HBM4 (6th generation HBM).
◇ Dominant position in high-profit HBM3E 12-layer products
SK hynix announced on the 24th that its operating profit for the second quarter of this year was recorded at 9.2129 trillion won, an increase of 68.4% compared to the same period last year. Total revenue was 22.232 trillion won, marking a 35.4% increase compared to the previous year. Net income stood at 6.9962 trillion won. The DRAM sector, including HBM, accounted for 77% of the company's total revenue. Due to strong performance, cash assets at the end of the second quarter increased by 2.7 trillion won to reach 17 trillion won, with a borrowing ratio of 25% and a net borrowing ratio of 6%. Net borrowings decreased by 4.1 trillion won compared to the end of the first quarter.
The results for the second quarter of this year are particularly a testament to SK hynix's overwhelming advantage in the 5th generation HBM (HBM3E) market. SK hynix plans to double its HBM sales and shipments compared to the previous year, leveraging the product performance and mass production capabilities of HBM3E to generate stable results. The company also expressed its determination to prepare for timely supply of HBM4, the 6th generation product, in line with customer demand to strengthen its competitiveness to the highest level in the industry.
In the securities market, it has been analyzed that while competitors Samsung Electronics and Micron are facing difficulties in mass production of the highly profitable HBM3E 12-layer products, SK hynix, which has stabilized production early and established a mass supply system, has solidified its market dominance. Samsung Electronics continues to struggle to supply HBM3E products to its largest client, Nvidia, and Micron is reportedly still at a minimal supply level.
◇ Will the high-flying performance continue? Concerns about declining HBM profits spread
However, competition with Micron and Samsung Electronics is expected to intensify starting with HBM4. Samsung Electronics, which faced setbacks with HBM3E, is predicted to enhance its HBM4 development and production capabilities based on next-generation DRAM processes, while Micron is also seeking to expand HBM4 supply to major clients like Nvidia. There are projections that if the current dominant position of SK hynix changes to a three-supplier system, competition over supply prices could reduce the HBM premium.
In addition, there are concerns that a significant change in the design and manufacturing methods of existing HBM products will lead to a sharp increase in production costs starting with HBM4. During the earnings announcement conference call, SK hynix responded to concerns about rising production costs for HBM4, stating, "Unlike existing HBM products, HBM4 incorporates design changes and the introduction of logic die, representing a significant transformation," and added, "We are currently negotiating with clients to maintain the current level of HBM profit margins."
Goldman Sachs, a global investment bank, recently reported that "the price of HBM3E is expected to fall by 30% next year compared to this year, and the price premium for HBM4 will remain at 45% of the previous generation," predicting that "the average price of HBM will decrease by about 10% next year." There are analyses suggesting that as Nvidia attempts to diversify its supply chain, it may leverage Micron, which has passed quality verification, to demand price reductions from SK hynix, leading to a decline in HBM prices.
Ryu Yeong-ho, a researcher at NH Investment & Securities, stated, "If Samsung Electronics successfully delivers HBM to Nvidia, concerns about oversupply in the HBM market will intensify," adding, "While the growth of ASICs (application-specific integrated circuits) is expected to trigger some demand increase, it will be difficult to maintain the same situation as this year, and the atmosphere may shift decision-making power regarding price negotiations from suppliers to demanders." Park Yu-ak, a researcher at Kiwoom Securities, also mentioned, "In the second half of the year, Micron will expand HBM3E supply, and Samsung Electronics will begin supplying HBM4 samples, raising concerns that SK hynix's previously monopolized market status will be challenging to maintain."
Mirae Asset Securities predicts that SK hynix's market share will peak above 80% in the fourth quarter of this year when it begins HBM4 shipments, but as competition from rivals intensifies in the second half of next year, its market share could fall below 60%.
In response to these concerns, SK hynix stated during the conference call, "The memory market led by HBM has transformed into an environment where leading players can hold negotiating power," adding, "Competition is a destiny that the company must accept; however, as SK hynix has emerged as a leader in the HBM market based on customer-oriented thinking in product development, mass production, and supply, we will maintain competitive elements that are not easily replicable by others."