SK Hynix reported a surprise operating profit boosted by strong sales of high-end memory chips used to power artificial intelligence (AI) applications.

The world’s No. 2 maker of memory chips reported an operating profit of 346 billion won (S$347 million) in the December quarter, compared with analyst estimates for a 169.9 billion won loss.

Revenue climbed to 11.3 trillion won, beating the highest forecast.

The company, which in December became South Korea’s second most valuable, is the leader in high-bandwidth memory (HBM) chips that work alongside Nvidia’s artificial intelligence accelerators, used extensively in the training of AI.

Investors are pinning their hopes on generative AI driving demand for servers that require more next-generation Dram, or DDR5.

“Hynix achieved its first operating profit in five quarters and is the first company in its peer group within the memory industry to recover from a string of losses,” said CLSA Securities Korea analyst Sanjeev Rana. “It is clear that ongoing improvement in product mix driven by higher contribution from HBM and a general recovery in commodity memory ASPs (average selling prices) will continue to drive its profit recovery in the upcoming quarters.”

The memory maker reported days after larger rival Samsung Electronics unveiled disappointing numbers, reflecting a semiconductor market slump that has depressed margins for more than a year. Industry executives, however, have projected a gradual rebound starting in 2024, especially as AI development accelerates and more services emerge that take advantage of new chip technology.

Chipmakers are optimistic about a sector recovery, with Taiwan Semiconductor Manufacturing Co last week projecting strong revenue growth in 2024.

ASML Holding, the sole maker of high-end lithography equipment key to manufacturing the most sophisticated semiconductors, closed at a record high on Jan 24 after orders more than tripled in the last quarter.

SK Hynix said it will boost capital spending in 2024 while aiming to minimise disruption to the demand-supply demand balance. And it will proceed with mass production of AI memory product HBM3E, focusing spending on HBM and other strategic products.

Sales of HBM3 surged more than fivefold in the fourth quarter, while those of DDR5 chips more than quadrupled, the company said.

SK Hynix now expects demand for both Dram and Nand to grow by mid- to high-teen percentages in 2024, echoing predictions for a market bounce-back in 2024.

SK Hynix’s Dram division had returned to profit in the three months to September, after two successive quarterly losses, with average selling price rising and chip prices stabilising after production cuts.

“It’s a surprise for the overall market,” said Yuanta Securities Korea analyst Baik Gilhyun.

The results reflect demand recovery not only in the AI-related area but also in the overall smartphone and PC market, she said. BLOOMBERG

By: DocMemory
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