SK Hynix expects full chip recovery after Q1 earnings surprise on AI boom


Employee walk past the logo of SK Hynix at its headquarters in Seongnam, South Korea, April 25, 2016. REUTERS/Kim Hong-Ji/File Photo

SEOUL (Reuters) -South Korea's SK Hynix Inc said it expected a full recovery in memory chips on AI demand, posting its highest profit in nearly two years on sales of advanced DRAM chips with high bandwidth memory (HBM) for use in generative AI chipsets.

The world's second-biggest memory chipmaker and Nvidia supplier reported a 2.89 trillion won ($2.1 billion) operating profit for the January-March quarter versus a loss of 3.4 trillion won a year earlier.

It beat expectations for a 1.88 trillion won operating profit by LSEG SmartEstimate, which is weighted toward analysts who are more consistently accurate.

"The memory market is entering into full recovery cycle with ongoing strength of AI demand," SK Hynix said.

"Demand improvement from conventional applications is also expected from the second half of 2024", meaning demand for chips used in smartphones, personal computers and servers.

Thursday's result marks Hynix's second-highest profit for the January-March quarter ever, a quick turnaround from heavy losses incurred in the year through the third quarter of 2023 as the global memory chip sector went through its worst downturn in decades, hit by a slump in demand for tech devices post-COVID.

AI BOOM

Among memory chipmakers, SK Hynix is the biggest beneficiary of the explosive increase in AI adoption, as it became the main supplier of HBM chips for Nvidia's graphic processing units that train AI systems.

SK Hynix has been the sole supplier of HBM3 to Nvidia, which has 80% of the market for AI chips, and began mass production of the latest version of HBM chips, called HBM3E, with shipments going to the U.S. firm.

Its shares have climbed 96% in the past 12 months, outperforming peers, on bets that its lead in HBM chip development would bolster SK Hynix's profitability.

Rival Micron, however, also said its HBM chips were sold out for 2024 and a majority of its 2025 supply was already allocated, and industry No.1 Samsung Electronics plans to ship its latest and most powerful HBM chips in the third quarter.

"Competition in HBM will intensify, sales prices will fall, and SK Hynix's market share will likely fall from the second half of this year," said Pak Yuak, analyst at Kiwoom Securities.

To stay ahead, SK Hynix announced earlier this month a $3.87 billion investment to build an advanced chip packaging plant in Indiana with an HBM chip line and research and development for AI products.

It also announced collaboration with contract chipmaker TSMC to develop the next version of HBM chips, called HBM4, and announced a 5.3 trillion won investment to build a new DRAM chip factory in South Korea with a focus on HBMs.

Its 2024 investments will be larger than initially planned, SK Hynix said.

First-quarter revenue rose 114% on-year to 12.4 trillion won.

($1 = 1,374.6200 won)

(Reporting by Joyce Lee and Heekyong Yang; Editing by Kim Coghill, Sonali Paul and Tom Hogue)

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