(Bloomberg) -- SK Hynix Inc.’s quarterly sales beat estimates, with the company declaring the beginnings of a recovery in the memory chip market thanks to surging interest in artificial intelligence.
The South Korean supplier to Apple Inc. and Nvidia Corp. now expects sales of its high-end DRAM chips to more than double this year to power storage-hungry AI applications. SK Hynix said it’s gearing up to push out more of those chips, even as the company vowed to continue to slash overall output.
The chipmaker’s sales came to 7.31 trillion won ($5.7 billion) in the June quarter, roughly half its revenue a year ago but soundly beating an average projection for 6.05 trillion won. Its operating loss came to 2.88 trillion won, in line with expectations.
“The worst has passed,” said Baik Gil-hyun, an analyst at Yuanta Securities Korea.
Shares in SK Hynix pared gains and were down around 1.5% Wednesday, amid a broader selloff on the Kospi and with weakness in the overall memory market tempering optimism.
Samsung Electronics Co., SK Hynix and Micron Technology Inc. have struggled for the better part of two years with a post-Covid collapse in demand for the memory chips essential to smartphones, servers and computers. This month, larger rival Samsung recorded its worst decline in quarterly sales in more than a decade, while sector bellwether Taiwan Semiconductor Manufacturing Co. cut its outlook and postponed production at its Arizona project to 2025, underscoring the depth of a global electronics market slump that set in after consumers and corporations trimmed spending to deal with a downturn.
SK Hynix shares recouped some of their losses since 2021 this year, gaining about 51% through Tuesday’s close on bets that output cuts and greater economic certainty might lift industry prices. Analysts including JP Morgan’s JJ Park also cited the rollout of new high-bandwidth memory that works in tandem with AI hardware such as Nvidia graphics accelerators, which promise to speed up data processing for intensive tasks such as training AI.
“We are seeing increasing adoption of AI by major customers, and that makes us believe that a turnaround for memory is very near,” Sanjeev Rana, head of Korea Research at CLSA told Bloomberg TV.
SK Hynix will continue to invest to expand the production capacity of high-density DDR5 and HBM3 chips, Chief Financial Officer Kim Woohyun said. Sales for graphics DRAM including HBM chips accounted for about 20% of quarterly DRAM sales, and the company will focus on increasing mass production of HBM chips next year.
But overall demand for memory remains weak, SK Hynix warned. The company is sticking to its target to reduce capex by at least 50% compared to 2022 and said production for both DRAM and NAND will be lower this year.
The world’s No. 2 memory maker indicated recovery in its traditional sales drivers would be muted, although it said the effects of production cuts will materialize in the second half. SK Hynix said it expects overall server market demand to remain soft, with only a “subdued” recovery in mobile demand. NAND shipments will remain flat in the current quarter, it said.
Expectations of a recovery in the second half buoyed optimism about an end to an unprecedented slump that’s gripped the $160 billion global memory industry, which has been sitting on months’ worth of inventory. This year, Samsung and its peers cut output to try and stabilize memory prices.
Read more: Samsung Sales Fall Most in Over a Decade as Chip Slump Persists
It remains unclear when the industry — infamous for its boom and bust cycles — will climb out of its sales trough. Much may depend on a fundamental Chinese economic rebound, which remains uneven.
What Bloomberg Intelligence Says
SK Hynix’s strong sequential sales growth for its high-performance DRAMs for artificial-intelligence (AI) servers in 2Q — demand more than doubled sequentially for high-end DRAMs — could imply it will be a major beneficiary of generative AI. Although DRAMs’ contribution to operating profit is still small, they could generate a larger profit in 2024 due to better production yields.
- Masahiro Wakasugi, BI analyst
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Longer term, the US-China conflict over technology and semiconductors further weighs on industry outlook.
Beijing launched a security review of chips from Micron this year, spurring concerns the government there is taking a more aggressive stance toward foreign companies. The country is among Korea’s largest export destinations, and both a key market as well as a production base for companies from Samsung to SK Hynix.
Both South Korean memory makers currently operate in China under a one-year waiver on equipment imports.
SK Hynix is looking into various options regarding its China operations, weighing long-term geographic risks, market demand and efficiency and talking with relevant government officials and chip gear makers, CFO Kim said.
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--With assistance from Youkyung Lee, Edwin Chan and Vlad Savov.
(Updates with executive comments from earnings call)
