SK Hynix, a prominent memory chip manufacturer based in South Korea, announced on Wednesday that the memory chip market is showing signs of recovery following a significant downturn. The company reported that its second-quarter operating loss had narrowed compared to the previous quarter, aided by robust demand for artificial intelligence (AI). The growing demand for memory chips can be attributed to corporate buyers stocking up on chips for AI data centres and gaming personal computers. The second half of the year is expected to witness a further increase in demand for such chips, particularly from major clients like Microsoft, which has outlined an aggressive spending plan to meet the rising demand for its AI services.
During an earnings call, Myoungsoo Park, the head of DRAM marketing at SK Hynix, expressed confidence in the long-range visibility of AI-driven demand, extending into the following year.
While the memory chip market is showing signs of improvement, market conditions remain varied depending on the type of chips. SK Hynix revealed that it would reduce the production of NAND Flash chips, primarily used for data storage, by an additional 5 per cent to 10 per cent due to high inventories and low profitability resulting from falling average sales prices.
Despite the challenges, SK Hynix experienced a boost in sales of high-end DRAM chips during the second quarter, partially offsetting losses incurred in the first quarter. The surge in AI has significantly contributed to the increased demand for AI server memory, leading to higher prices for DRAM chips in the second quarter compared to the first.
SK Hynix holds a leading position in the high bandwidth memory (HBM) DRAM market, especially in the field of generative AI. The company commands a 50 per cent market share in HBM, followed by Samsung Electronics and Micron.
Looking ahead, SK Hynix's DRAM business is expected to return to profit in the fourth quarter, driven by strong sales of premium products such as HBM and high-density DDR5 chips. However, uncertainties remain, particularly concerning NAND Flash demand from Chinese mobile firms, which may stagnate until the year-end.
SK Hynix has adjusted its capital expenditure plans for 2024, focusing on matching the chip mix with market conditions rather than expanding capacity. The company's shares have shown promise, rising more than 50 per cent year-to-date, fueled by investor optimism for a market recovery in the second half of the year.
In conclusion, SK Hynix's earnings report points towards a gradual recovery in the memory chip market, driven by surging demand for AI-related chips and high-end DRAM products. The company's strategic approach to capital expenditure and chip mix alignment reflects its efforts to adapt to market conditions and maintain a competitive edge in the industry.