Author: Zhou Yuan/Wall Street News
AI has become the biggest driver of the performance of SK hynix, the upstream supplier of NVIDIA GPUs, in the second quarter of fiscal 2024.
According to SK hynix's financial report for the second quarter of fiscal 2024 ended June 30, 2024, which was just released on July 24, the company's combined combined revenue for the second quarter of the fiscal year was 16.4233 trillion won (about 11.9 billion US dollars/86.068 billion yuan), an increase of 125% year-on-year and 32% quarter-on-quarter, reaching another record high.
During the reporting period, SK hynix's operating profit was 5.4685 trillion won (about 4 billion US dollars/28.930 billion yuan), which has returned to the level of 5 trillion won since 2018. Net profit for the same period was 4.12 trillion won (about 3 billion US dollars/21.698 billion yuan), with an operating profit margin of 33% and a net profit margin of 25%.
EBITDA reached 8.59 trillion won (US$6.2 billion/44.842 billion yuan), up 41% year-on-year and 1,305% quarter-on-quarter, with an EBITDA margin of 52%.
Among them, HBM (high-bandwidth memory) sales increased by 80%+ month-on-month and 250% year-on-year; Sales of eSSDs (Enterprise Solid State Drives) increased by approximately 50% sequentially.
"In the second half of the year, demand for AI servers will continue to be strong, and traditional applications will gradually recover with the introduction of AI PCs and mobile devices."
According to the company's forecast, the recovery in demand for traditional PCs is relatively weaker than initially expected, but AI PCs will drive the long-term adoption of higher content and low-power memory in terminals.
In the first half of this year, demand for mobile devices (smartphones) recovered modestly.
On July 24, preliminary data released by Counterpoint showed that in the second quarter of 2024, global smartphone sales increased by 6% year-on-year, the highest year-on-year increase in nearly three years.
On July 25, Canalys' latest report showed that in the second quarter of 2024, China's smartphone market will achieve further recovery after experiencing the inflection point of the previous quarter, with shipments increasing by 10% year-on-year to return to the level of 70 million units.
With the launch of flagship phones and foldable phones that support AI technology, SK hynix predicts that the demand for smartphones will gradually improve in the second half of this year. At the same time, demand for smartphones will grow again in the second half of 2025 due to the release of more AI phones, which require more powerful memory than existing high-end models.
SK hynix expects that AI servers are driving demand growth. With the development of AI, big tech companies are spending more on AI, and the demand for general-purpose SV (System Verilog) will gradually improve with the replacement cycle of DC servers and the investment in new energy and cost-effective platforms.
SK hynix said that demand for AI-based memory such as HBM and eSSD was strong, and overall prices of DRAM and NAND flash memory products continued to rise, resulting in a 32% quarter-on-quarter increase in revenue. At the same time, sales growth, mainly in premium products, combined with currency effects, led to a 10 percentage point sequential increase in operating margin to 33% in the second quarter, which led to a good performance in line with market expectations. ”
Regarding the outlook for the third quarter, SK hynix said that both HBM (DRAM) and eSSD (NAND) sales will increase (the latter will increase by 400% year-on-year this year), and "revenue will continue to grow as the product mix is optimized and the average selling price increases." ”
SK hynix has already supplied samples of the 12-layer stacked HBM3E to major customers, and plans to start mass production in the third quarter of this year and supply it to major customers in the fourth quarter of the year in batches to maintain the company's leadership in the HBM market. Since the second quarter of this year, the company's HBM3E sales have seen "significant growth", and it is expected that from the third quarter onwards, HBM3E sales will exceed HBM3 sales.
SK hynix said that its HBM3E sales will account for 50%+ of the overall HBM this year.
SK hynix also has a technological and market advantage in the DAM market: it is the only company in the industry that has the ability to provide DDR5 DRAM products with the highest capacity of 256GB for servers. In the second half of this year, it will maintain its competitive edge with the introduction of 32GB DDR5 DRAM for servers and MCRDIMM for high-performance computing.
In terms of NAND, SK hynix will meet the needs of AI PCs on devices with high-performance and low-power PCIe5 cSSDs. With the industry's only 60TB eSSD (available in the second half of the year) and 128TB (available in early 2025) products, we will meet the market demand for high-density eSSDs and continue to maintain product competitiveness.
In terms of Captital Expenditure (CAPEX), Hynix expects that in 2024, the company's capital expenditure will be higher than previously planned, but it will be executed within the operating cash flow (OCF: Operating Cash Flow); The company's investment in infrastructure will continue to increase to better support the investment in HBM.
In response to investors' questions, SK hynix noted that traditional servers are about to enter a replacement cycle, and "DRAM demand for non-HBM servers is expected to grow by 20% in 2024 and 2025." ”
Although investment in AI servers continues to grow, SK hynix has observed an improvement in customer demand for general-purpose servers.
During the 2017-2018 period, the market is about to enter a replacement cycle with significant investments in cloud data center servers, while the deployment of AI data centers is also driving the demand for general-purpose servers. In particular, the corresponding increase in power consumption of AI servers will prompt the upgrading of traditional servers to improve power efficiency and reduce operating costs.
Finally, SK hynix said that the company's increased capital expenditure will not lead to historical overcapacity in memory products. Because the company's new capex is mainly focused on increasing HBM's capacity expansion, which has strong downstream demand and technical constraints at the same time, "even if we expand [HBM] capacity, there may still be a shortage of supply." ”
In addition, SK hynix believes that "the memory industry is expected to shift from a large-scale production structure that produces a small number of products to a structure that produces diversified products in small batches." "As AI technology is applied to a wider range of applications, it is expected that new memory products will emerge and create new demand.
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