Daily Management Review

Memory Chip Recovery Has Started, According To SK Hynix, Which Also Mentions Strong Demand For AI


Memory Chip Recovery Has Started, According To SK Hynix, Which Also Mentions Strong Demand For AI
The memory chip market is beginning to rebound from a severe downturn, according to South Korea's SK Hynix, which also reported on Wednesday that strong demand for artificial intelligence products has allowed it to reduce its second-quarter operating loss from a record-low level.
According to the second-largest memory chip manufacturer in the world, the demand for memory chips from corporate purchasers stocking AI data centres and gaming personal computers is projected to rise in the second half of the year.
After announcing a steep increase in expenses from constructing new data centres, Microsoft, a key customer for such chips, on Tuesday outlined an aggressive expenditure plan throughout fiscal 2024 to fulfil demand for its new AI services.
"We have long-range visibility (on AI-driven demand) from our clients into next year," Myoungsoo Park, SK Hynix's head of DRAM marketing said in an earnings call.
As prices continued to drop due to weak consumer demand amid economic headwinds, memory chip manufacturers reduced production in the first half of this year, leading to significant writedowns in the value of unsold stockpiles.
Depending on the kind of chips, market circumstances are still inconsistent. SK Hynix announced on Wednesday that it would further reduce NAND Flash chip output, which is used for data storage, by 5% to 10% due to large inventories, low profitability, and a decline in average selling price.
Due to sluggish memory chip pricing and demand, SK Hynix reported an operational loss of 2.9 trillion won ($2.28 billion) in the June quarter, compared to a profit of 4.2 trillion won in the same period last year.
In the June quarter, revenue decreased 47% year over year to 7.31 trillion won.
However, the second quarter saw a rise in sales of premium DRAM chips, narrowing losses from the record 3.4 trillion won reported in the first quarter. This was mostly due to the growth in AI.
According to SK Hynix, demand for AI server RAM increased by more than twice as much in the second quarter as it did in the first. The average selling price of its DRAM chips, which store data from applications while the system is in operation, increased in the second quarter compared to the first.
High bandwidth memory (HBM) DRAM, a key component of the rapidly expanding field of generative AI, is dominated by SK Hynix. According to TrendForce, it has a 50% market share in HBM as of 2022, followed by Samsung Electronics' 40% and Micron's 10%.
HBM can supply more data to generative AI circuits, enabling them to compute quickly.
According to Greg Roh, head of research at Hyundai Motor Securities, SK Hynix's DRAM division is anticipated to turn a profit in the fourth quarter as a result of strong sales of premium goods including HBM and high-density DDR5 chips.
"But NAND Flash demand from Chinese mobile firms may continue to stagnate until year-end," leaving the chip maker's return to full profit uncertain, he added.
With a sustained focus on tailoring the mix of chips it creates to market circumstances rather than expanding capacity, the business predicted that its 2024 capital investment will be higher than this year, when its budget was cut by at least 50% from 2022.
In contrast to the market as a whole, which fell by 0.3%, SK Hynix shares reversed early gains to decline 0.4% in morning session.
According to Nam Dae-jong, an analyst at eBEST Investment & Securities, the company's statements indicated to a delayed rebound in NAND Flash and older DRAM chip demand. The company's shares had increased more than 50% year to far on investor anticipation for a market recovery early in the second half.
On Thursday, Samsung, the largest manufacturer of memory chips in the world, will release its comprehensive second-quarter financial results. Samsung stock fell 2% in early trading.