As prices for general-purpose DRAM used in servers, PCs and mobile devices continue to rise, analysts say SK hynix's operating margin for general-purpose DRAM will top 70%. Demand for general-purpose DRAM is increasing, but SK hynix's DRAM production capacity is concentrated in high bandwidth memory (HBM), so the supply shortage is expected to persist. With SK hynix finalizing a supply contract with Nvidia for next year's sixth-generation high bandwidth memory (HBM4), profitability for general-purpose DRAM is also improving sharply, raising expectations for earnings.
According to the industry on the 11th, with prices expected to keep rising due to a shortage of general-purpose DRAM supply, projections indicate SK hynix's operating margin for general-purpose DRAM will exceed 70%. It has been about 30 years since operating margins for general-purpose DRAM surpassed 70%, last seen in the super-boom of memory semiconductors in 1995. In 1995, the rapid spread of personal computers (PCs) coincided with the sudden release of Microsoft (MS) "Windows 95," driving a super-boom in the DRAM market. At the time, memory semiconductor corporations were said to have DRAM operating margins above 70%.
Lee Min-hui, an analyst at BNK Investment & Securities, said, "After the boom from 1993 to 1996 when DRAM operating margins exceeded 70%, we have entered another boom 30 years later. By year-end, the operating margin for server DRAM is expected to be 70%," and added, "If price strength continues into the first quarter next year amid signs of a prolonged supply shortage, operating margins for general-purpose DRAM will also surpass 70%."
At its third-quarter earnings conference call this year, SK hynix said that not only HBM but also next year's supply volumes of general-purpose DRAM for servers, PCs and mobile devices are effectively sold out, indicating limited production capacity. Meanwhile, as capacity expansions by Samsung Electronics and Micron are projected to fall short of demand, analysts expect the price uptrend to continue. The dominant view is that Samsung Electronics' new Pyeongtaek Campus Plant 4 (P4) line under expansion will also be used mostly for HBM production. Micron has partially revised its production plan to match demand for general-purpose DRAM, but it remains insufficient to meet the surging demand.
Choi Bo-young, an analyst at Kyobo Securities, said, "New fabs such as SK hynix M15x and Samsung Electronics P4 will mainly be used for HBM, making it difficult to expand capacity for general-purpose DRAM," and added, "The structural supply shortage is likely to continue in the DRAM market excluding HBM."
With SK hynix finalizing an HBM4 supply contract with Nvidia for next year, improving profitability in general-purpose DRAM and other products is raising the bar for next year's operating profit outlook. While the expected entry of Samsung Electronics and Micron into the supply chain raised concerns about HBM4 price cuts, SK hynix said supply talks were concluded at a level that can "maintain profitability." According to financial data firm FnGuide, the operating profit forecast for SK hynix next year was revised up about 36% over the past month, from 5.0246 trillion won to 6.87301 trillion won.
A semiconductor industry official said, "As the memory semiconductor business shifts from a model of mass production followed by sales to supplying volumes secured through pre-contracts, visibility on profitability has increased," and added, "With DRAM supply constraints likely to continue for about two years, SK hynix's earnings are expected to keep growing."