Expectations grow for SK hynix despite massive first-half losses

SK hynix Inc. headquarters in Icheon. [Photo by Yonhap]

South Korea’s SK hynix Inc. lost about 6.3 trillion won ($4.91 billion) in the first half of this year due to a slump in the memory chip industry, but there are growing expectations that the company’s performance will improve in the second half as the effects of production cuts begin to take effect and demand for high-value-added products such as DDR5 and high-bandwidth memory (HBM) increases.

According to the company’s preliminary report on Tuesday, SK hynix incurred an operating loss of 2.88 trillion won in the second quarter, a sharp contrast to the 4.19 trillion won operating profit a year ago.

Revenue also declined significantly by 47.1 percent on year to reach 7.3 trillion won. Net loss amounted to 2.98 trillion won for the quarter.

In the first quarter, the company recorded an operating loss of 3.4 trillion won, followed by an operating loss of 1.7 trillion won in the fourth quarter of last year. This marked the first time in a decade that the company experienced consecutive quarterly losses since the third quarter of 2012.

However, despite the continued losses, the company saw an increase in revenue and reduced operating losses compared to the first quarter.

The company attributed its hope for recovery in the second half to the growing demand for AI server memory.

“The AI market, driven by conversational AI like ChatGPT, has expanded, leading to a surge in demand for HBM3 and DDR5 premium products. As a result, our second-quarter revenue increased by 44 percent versus the first quarter, and the operating loss narrowed by 15 percent,” the company explained.

The second quarter saw an increase in DRAM and NAND sales, with DRAM’s average selling price (ASP) rising compared to the first quarter. While general DRAM prices, such as DDR4, witnessed a downturn due to weak PC and smartphone markets, the increase in sales of lucrative high-specification products for AI servers bolstered the overall ASP for DRAM.

Efforts to reduce costs throughout the company, coupled with reduced inventory evaluation losses, also led to a decrease in the operating loss ratio from 67 percent in the first quarter to 39 percent in the second quarter.

During its conference call held on Wednesday, SK hynix projected that the robust demand for AI memory products will continue in the latter half of the year, along with the tangible effects of industry-wide output-cutting measures. With increasing demand for AI servers and Nvidia’s expansion plans involving HBM, expectations are high for SK hynix’s DDR5 and HBM products.

SK hynix made headlines last year for being the industry’s first to develop HBM3, the fourth-generation HBM product. In April this year, the company achieved another milestone by successfully stacking 12 individual DRAM chips vertically, creating a new 24GB HBM3 product, the highest capacity currently available.

The company plans to commence mass production of the fifth-generation HBM3E in the first half of next year and is preparing to produce the sixth-generation HBM4 in 2026.

Market research firm TrendForce forecasts an average annual growth rate of 45 percent for the HBM market until 2025.