Nvidia’s biggest AI memory maker sees huge profit turnaround

SK Hynix said it expects a full recovery in the memory market, led by surging AI-related demand, and lifted its capital spending plans.

The leader in the high-bandwidth memory that power Nvidia Corp.’s AI accelerators declared it’s entered a rebound phase, after posting its fastest pace of revenue growth since 2010, and said it’s preparing bigger outlays to expand capacity of its leading-edge chips.

The world’s tech companies are locked in a race to supply components essential to creating generative AI services.

SK Hynix earlier said it’s investing some $15 billion (R288.25 billion) in South Korea to meet surging demand for such high-end chips, on top of a plan to spend $3.9 billion (R74.95 billion) on an advanced packaging plant and research center for artificial intelligence products in Indiana.

The company said it’s increasing the supply of its leading-edge HBM3E chips and in talks with a number of customers on long-term contracts for such semiconductors.

Overall memory demand is also on a steady growth path, it said, citing double-digit price rises in the broader DRAM market and a rebound in NAND prices.

That more than doubled the world’s No. 2 memory maker’s quarterly sales, the company’s fastest pace of revenue expansion in over a decade, while operating profit blew past estimates.

Shares in SK Hynix, which have gained 27% this year, fell 3.9% during Thursday trading in Seoul, part of a broader selloff in Asian equity markets following Meta Platforms Inc.’s weak outlook.

Bigger rival Samsung Electronics Co. shed 2.3%.

The company’s capacity for high-end memory is fully booked for this year and it needs new factories to keep up with the demand, said Tom Kang, director at Counterpoint Research.

SK Hynix is expected to hit revenue of almost 61 trillion won and a profit margin of more than 20% this year, he said.

“This is a clear turnaround and the start of a record-breaking year for SK Hynix,” he said.

The company has said it expects demand for high-end memory to grow 60% per annum.

Strong demand for AI server products is also helping to bolster the prices of DRAM.

Demand for enterprise solid-state drives helped SK Hynix’s NAND business return to profitability in the first quarter, according to Chief Operating Officer Kim Woo Hyun, who spoke on an earnings call.

Investment in 2024 will be slightly higher than planned at the start of the year, with the bulk of spending to focus on high-margin products and infrastructure for medium-term growth, Kim said.

“Any impact on near-term supply and demand of conventional products will be limited,” he said.

“We will  balance investing in future growth with ensuring financial soundness, given our current level of cash generation.”

In the March quarter, SK Hynix reported a bigger-than-expected revenue of 12.4 trillion won (R172.92), up 144% from a year ago.

Operating income was 2.89 trillion won, its second-highest first-quarter operating profit on record and outperforming estimates of 1.8 trillion won.

SK Hynix is reporting days after Texas Instruments Inc. gave a bullish revenue forecast for the current quarter, indicating that a slump in demand for industrial and automotive components may be easing.

Samsung’s preliminary operating profit also showed a sharp rebound in the first quarter, while Micron Technology Inc. last month gave a strong sales forecast.

SK Hynix has been fighting to keep its lead over Samsung, which has pledged to focus its formidable resources on catching up in high-end memory.

The newest SK Hynix factory will be built near its existing production base in Cheongju.

Separately, SK Hynix is proceeding with other domestic investments including in the Yongin Semiconductor Cluster, where it’ll ultimately inject about 120 trillion won.

The company plans to start construction of the first fab in Yongin next year, for completion in 2027.

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Nvidia’s biggest AI memory maker sees huge profit turnaround