SK Hynix, one of the largest chip manufacturers in the world, released information on Thursday, July 25, about the financial results of its activities in the second quarter of the current year.
Nowadays, the mentioned company retains leadership in the area of producing memory microcircuits, which are critically necessary components for computing using artificial intelligence. It is worth noting that AI is currently on a trajectory of sustainable development and has prospects for further successful evolution. Due to this circumstance, there is a reason to assess as the most realistic probability that in the short, medium, and long term, the level of demand for chips will remain high. Moreover, artificial intelligence has actually already become the main driving force of progress at the current stage of the existence of human civilization.
The revenue of SK Hynix, based in South Korea, for April-June of the current year, was fixed at 16.42 trillion Korean won (about $11.86 billion). This indicator showed an increase of 124.7% compared to the result for the same period in 2023. It is worth noting that the LSEG estimate provided that the company’s revenue for the second quarter of the current year would be fixed at 16.4 trillion Korean won. Also, important is the fact that the corresponding figure for April-June 2024 turned out to be the largest in the entire history of SK Hynix. This statement is according to LSEG data available since 2009.
The company’s operating profit for the second quarter of the current year amounted to 5.47 trillion Korean won. The LSEG estimate provided that the corresponding indicator for April-June 2024 would be fixed at 5.4 trillion Korean won. During the same period last year, in the context of this figure, the company faced a loss of 2.88 trillion Korean won. It is also worth noting that the operating profit of the memory chip manufacturer for April- June 2024 was the largest since the second quarter of 2018.
SK Hynix said that the continuous increase in overall prices for its memory products contributed to revenue growth of 32% last quarter relative to the result for January-March of the current year. Also in this context, significant consumer interest in artificial intelligence memory, including high-bandwidth memory, was mentioned separately.
SK Hynix is a component supplier for the machine intelligence chipset of companies such as Nvidia. In this case, it means high-bandwidth memory microcircuits produced by the company.
At the same time, SK Hynix shares fell in price against the background of excellent financial statements. On Thursday morning, the corresponding indicator fell by 7.81%. The downward dynamic in this case is because the Kospi index lost 1.91% after US tech stocks sold off overnight amid disappointing performance reports from Alphabet and Tesla.
Sanjeev Rana, an analyst at CLSA Securities Korea Co. says there are concerns that cloud hyper scalers’ capex growth in the current year may not gain further momentum for an upward dynamic. The materialization of this assumption would mean revenue growth from generative artificial intelligence apps would be below initial expectations.
The Hynix report, published on Thursday, notes that in the second half of the current year, a high level of demand for servers with AI is expected to remain. The company also predicts a gradual recovery of the situation in the context of consumer interest in traditional markets, including commercial sales spaces for personal computers and smartphones. The firm explains this expectation by the fact that the integration of artificial intelligence technologies into the mentioned devices should become a factor in demand growth.
SK Hynix plans to maintain its leadership in the high-bandwidth chip market through the mass manufacturing of 12-layer HBM3E products. In the context of the so-called artificial intelligence boom, which has become a global process and shows signs of sustainable continuation in the future, the company’s corresponding strategy is likely to generate positive financial growth indicators.
In the current quarter, SK Hynix intends to launch the production of the 12-layer HBM3E. The company also plans to start supplying relevant products to customers by the fourth quarter of 2024.
The leaders in the area of memory, including SK Hynix, are actively expanding the capabilities of chips in the corresponding category. In this case, the goal is to meet the growing demand for artificial intelligence processors.
HBM requires more wafer capacity than regular dynamic random access memory products, a type of computer memory used to store data. In a statement, SK Hynix notes that there is currently an increasing need for investment. Separately, it was noted that the corresponding tendency is typical for both regular DRAM and HBM, which require more wafer capacity. The company expects that by the end of the current year, the volume of relevant investments will exceed those figures that were predicted at the beginning of 2024.
Besides, in a statement by SK Hynix, it is predicted that in 2025, against the background of an increase in financial injections into the industry, excess production capacity will rise, a significant part of which will be used to manufacture high-bandwidth memory chips. If the corresponding scenario is implemented, the shortage of supply of conventional DRAM currently observed is likely to persist.
SK Kim of Daiwa Capital Markets, in a note released last month, said that the shortage of HBM will last until 2025 due to a bottleneck in the production of related products. The expert also expects that a favorable price environment will be observed until the end of the current year and next year. This means a high probability of continued growth of earnings SK Hynix. The company’s positive prospects are related to its significant competitiveness in the HBM for artificial intelligence graphics processing units and high-density enterprise SSD (eSSD) for the AI servers market.
An increase in the supply of high-bandwidth memory chips was recorded against the background of high-intensity implementation of machine intelligence. The corresponding process has become a reality, which is currently scaling up and carrying out an evolutionary movement, due to the launch of the functioning of large language models, such as, for example, ChatGPT.
Experts have repeatedly warned that in 2024, due to the boom in artificial intelligence, supplies of high-end memory chips will be limited. In May, SK Hynix and Micron announced that they would run out of high-bandwidth memory microcircuits this year. The companies also noted that stocks for 2025 are also almost sold out.
To ensure the functioning of large language models, a large number of high-performance memory chips are needed. The corresponding microcircuits allow the mentioned models to remember the details of completed conversations with users and consumer preferences. This functional feature is necessary so that artificial intelligence systems can generate answers, the semantic content of which corresponds to the paradigm of the logic of human perception, analysis, and processing of information, and the concept of human thinking in the context of forming conclusions and inferences regarding the facts and phenomena of the surrounding space of the existence of matter of the being.
SK Hynix has been the market leader in high-bandwidth chips for a long time. The company was the sole supplier of HBM3 microcircuits for Nvidia. This year, SK Hynix’s market positions faced the prospect of increased competition. The company’s leadership turned out to be in reality, where it may have to fight a kind of battle for status after it became known that another South Korean chip manufacturer Samsung allowed its HBM3 microcircuits to be used in Nvidia processors for China.
It is worth noting that Nvidia is currently one of the main beneficiaries of the artificial intelligence boom. This year, the company’s market capitalization exceeded the historical mark of $3 trillion. Nvidia’s share of the global artificial intelligence chip market is about 80%.
SK Hynix intends to begin supplies of the next-generation 12-layer HBM4 in the second half of 2025. The implementation of the relevant intention will strengthen the competitiveness of the company.
Lee Min-hee, analyst at BNK Investment & Securities, reckons that SK Hynix will be able to maintain its technical leadership and outperform competitors. At the same time, the expert said that investors’ expectations are so high that they may be hard to meet. According to the analyst, for the mentioned reason, in the short term, the value of the company’s shares will not rise rapidly.
HBMs could account for 20% of SK Hynix’s profit for DRAM chips by the end of 2024, from almost 0% in the first half of 2023. This is the opinion of analysts interviewed by the media. This forecast is associated with a significant probability that Nvidia will accelerate the implementation of plans to develop next-generation graphic processing units to meet the growing consumer demand formed by high-intensity progress in the area of generative artificial intelligence.
