SK Hynix Inc Q2 2023 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Subin Lee - CIMB Research - Analyst : [Interpreted] I have -- this is a 2-part question. Now the first part of my question is about the bit growth. So we see that the bit growth in the second quarter has outperformed the guidance. But given the fact that the IT demand recovery is yet to catch up, what do you believe -- what does the company believe were the factors that drove the customers' purchases? And does the company also believe that this trend is going to continue into the third quarter of the year? And the second part of my question is about the revenue mix for the HBM and DDR out of DRAM in the second quarter. And what does the company believe that they will be by the end of the year? Unidentified Company Representative [Interpreted] Now let me first answer the first part of your question. Now in the second quarter, there was a big growth in the AI demand for the company's DRAM. And as a result, there was more than double growth in the shipment of the DDR5 and the HBM. So I would say that it comes down to the company's fundamental competitiveness in our products. And also at the same time, there was some inventory build demand among the PC and mobile customers whose inventory level had dwindled in the first quarter. And we see that for the PCs, the channel inventory is improving. And also for the mobile consumers, there was a higher preference to purchase flagship products. And as a result, there was also some recovery in the demand for high content memory. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 26, 2023 / 12:00AM, 000660.KS - Q2 2023 SK Hynix Inc Earnings Call And now for NAND, it appears that the demand uncertainty is going to continue throughout the year. And also given the fact that we still need to improve the inventory soundness, we have tried to maximize sales across all applications. And also for the -- and also in the third quarter, we believe that the server demand for AI is going to keep increasing, especially for high-density DDR module and the HBM. And also the demand for high -- among the mobile customers, demand for high-density memory is becoming more and more visible. So we believe that in the second quarter and so moving on from the second quarter into the half of -- into the second half of the year then, we believe that the demand is going to remain as healthy as the second quarter. Then for NAND, there was a very high base effect. And as a result, the shipment remained almost flat from the second quarter. And then looking at the bit growth, then we believe that in the second quarter, there was also some adjustments from then but we believe that there is going to be some -- so we will continue to try to increase sales based on the real demand and better application mix. Now for your question -- the second part of your question about the revenue share by the HBM and DDR5, now as was also explained during the presentation, for the graphic DRAM including HBM, the revenue share has grown precipitously since the fourth quarter of last year, so much so that it has now gone over 20% out of the total DRAM revenue. Now for the DDR5, we see that the demand for DDR4 continues to soften. So we are very quickly switching to DDR5 production, although we cannot give you the specific number at this time. But I can say that compared to the market, I would say that our mix strategy is about 2 quarters ahead. And then about the HBM and the high-density DDR, -- in other words, the products for AI. Now as I believe I have also mentioned this in the last earnings release conference call, but then again, we believe that the revenue for these 2 products are going to more than double. And we will continue to see growth in the revenue of these 2 products more so in the second half than the first half of the year. So for the year, it is likely that the 2 product share is going to top 20%.

Question: Dong Hee Han - SK Securities Co., Ltd., Research Division - Analyst : [Interpreted] I also have 2 questions. First is about the HBM. Now HBM itself appears to be somewhat like a contract-based business. So does the company believe that based on this business model, the company will have some bargaining power in terms of the pricing? And the second question is about the HBM demand. With the demand for HBM rising very sharply, then it is likely that it could also smooth out the profit variability at different cycles. And does the company also believe that this would have an impact on the DRAM market share as well? Unidentified Company Representative [Interpreted] I see that HBM is the focus of intense attention today. I believe that the question was about whether the company will be able to maintain its price bargaining power for the long term. Now for products like HBM, which is a system in package type, then from the very beginning of product planning, we would have close collaboration with the customers as well as the related companies for development cooperation. It would also require large-scale R&D resource input, meaning that it is the kind of business that would require dedicated investment. And then also in terms -- so we would then also look at the appropriate ROI across the life cycle, which I mentioned was around 2 years. So based on these factors, then we would also set the pricing. And this negotiation is conducted almost on a yearly basis. Now in other device businesses, then there is a separate validation process, meaning that the process company would validate the memory ahead of time. But then for the HBM, that goes to the accelerators. And as I mentioned earlier, the planning is done with the customers, meaning that the planning, as well as the validation, pretty much occur at the same time. So the capacity is also -- so capacity within the value chain is also predetermined. So this is conducive for such long-range planning. And down the road, as we move on to HBM4, the ecosystem is likely to become even more complex. So yes, the business model that is different from the off-the-shelf devices is likely to be maintained. And this also means that given its nature of that is similar to a contract-based business, then the question was whether it is going to smooth out the profit variability. And we believe that the answer would be yes, given its contract-based business nature as well as the pricing structure. And about the second question on whether this will also have an impact on the overall DRAM market share. Now on one hand, growth inside the market is almost a given. And then -- so it depends on the company's product competitiveness as well as the supply competitiveness. So if we maintain our competitiveness on both fronts, then I believe, yes, it would also have a positive impact on the company's market share and even the bit share.