SK hynix moved to quell worries about a "memory peak" and a slowdown in artificial intelligence (AI) infrastructure investment raised by overseas investment banks (IB) and analysts during its second-quarter earnings conference call on the 29th. It focused on calming investors by addressing one by one the market's key concerns, from the possibility of oversupply due to expanded production capacity (CAPA) to fears over the threat of China-made high bandwidth memory (HBM).
◇ "Production capacity expansion is based on confirmed demand… the possibility of oversupply is limited"
SK hynix said, "Memory demand in the AI ecosystem will continue to grow," adding, "The production capacity expansion currently underway is grounded in visibility into market demand secured as partnerships with customers strengthen." SK hynix explained, "Because capacity expansion proceeds flexibly based on verified demand, the chance that mid- to long-term investment growth will lead to oversupply is limited."
On concerns about an investment slowdown amid some big tech corporations considering data center leasing businesses and the emergence of high-efficiency AI models, SK hynix said, "Rather than a contraction in AI investment, we see it as a phase of increasing the utilization of the large-scale AI infrastructure built so far and moving in earnest toward monetization." Regarding the trend of improved computational efficiency in AI models such as China's "Kimi," it said, "This will not dampen AI infrastructure investment but instead drive further expansion."
SK hynix emphasized that, as big techs expand memory investment on the back of sales and profit generated from cloud AI services, a tight supply-demand balance is expected for a considerable period. It also reaffirmed that equipment investment and production plans will proceed in stages after comprehensively considering visibility into customer demand and investment efficiency.
◇ "Big tech prefers vetted suppliers"… alleviating concerns over China-made memory
SK hynix also eased worries about Chinese companies catching up in the memory chip market. On the market entry by Chinese corporations into HBM and high-performance DRAM, it said, "Customers prefer suppliers that are more stable with no quality issues when it comes to supply." With talk growing about the possibility that Chinese players could grow faster than expected—spurred by Changxin Memory Technologies (CXMT) moving toward a stock listing and news that Chinese state-owned enterprises and startups are mass-producing deep ultraviolet (DUV) immersion lithography equipment—the company is seen as responding to market concerns by emphasizing quality and reliability.
SK hynix said it is also reducing earnings uncertainty by expanding long-term agreements (LTA) with customers. "The LTAs under discussion are designed in various forms after comprehensively considering the characteristics of customers and products," it said, adding, "While the contract period is typically five years, specific terms may vary depending on the customer and product." It added, "The contracts also include mechanisms such as customers' mid- to long-term volume purchase commitments and deposits, and prices are negotiated with each customer to respond to market fluctuations."
SK hynix said it has completed LTA negotiations with about 10 customers, including key customers, but declined to disclose the share of LTAs in total sales. It only noted, "We plan to operate at an appropriate level based on market demand."
◇ Outlook for stronger earnings improvement in the second half as HBM4 ramps up
There were also indicators that could allay concerns on the earnings front. SK hynix said the average selling prices (ASP) of DRAM and NAND flash in the second quarter rose by about 30% and the mid-50% range, respectively, from the previous quarter. DRAM saw high-single-digit shipment growth by expanding sales focused on HBM3E (5th-generation HBM) and AI server products within constrained supply capacity, while NAND shipments increased by the mid-10% range on stronger sales of enterprise solid-state drives (eSSD). Sales of high-capacity eSSD of 30 terabytes (TB) or more tripled from the previous quarter.
SK hynix said, "As increases in DRAM shipments and improvements in the product mix lift ASP, we expect earnings improvement to strengthen further in the second half," adding, "With growing HBM4 (6th-generation HBM) volume and higher shipments of general-purpose DRAM based on 1c nanometer, second-half bit growth (production growth rate) will be higher than in the first half." HBM4 began mass supply to major customers in the second quarter, and its mass-production yield and quality are approaching the levels of HBM3, which has already entered a mature stage. Next-generation HBM4E (7th-generation HBM) is progressing smoothly with a goal of full-scale mass production in 2027, and the company is also developing "IHBM" technology to solve thermal issues in next-generation products such as HBM5 (8th-generation HBM).
Song Hyun-jong, head of the corporate center (president) at SK hynix, said, "This year's investment is expected to be in the high-40 trillion won range," adding, "Phase 1 of the Yongin semiconductor cluster fab is targeted to open in 2027." He continued, "Going forward, the core competitiveness is to keep supplying the quantities customers want," referring to the recently released P&T7 investment and plans to build a new domestic fab. He added that expansion of new production lines and equipment input will be carried out in stages while watching visibility into customer demand.