Sk Hynix Inc S/Gdr 144A

Afternoon and evening, this is Park Dong-Hwan, head of IR at SK Hynix. Welcome to the 20, SK Hynix 2024, second quarter earnings release conference call. Allow me to introduce the executives present here today. We are joined by CFO Kim Woo-Hyeon, head of DRAM Marketing Kim Kyu-Hyeon, and head of NAND Marketing Kim Seok. Let me issue a disclaimer. All outlooks presented by the company are subject to change depending on the macro and economic and market circumstances. With that, we'll now begin the SK Hynix earnings release conference call for second quarter 2024. Mr. Kim CFO will first present the earnings followed by the company's future plans and market outlook and a Q&A session with the attending executives. Good morning, everyone. Allow me to first introduce the company's performance for the second quarter of 2024. In the second quarter, AI memory product demand continued to hold very strong, while demand for conventional memory products also grew as customers tried to build inventory ahead of potential tightness in the future, which led to another quarter of meaningful price increase for growth in the future. The second quarter of 2020 saw a significant increase in sales of both DRAM and NAND. As a result, our second quarter revenue reached $16.4 trillion an increase of 32% sequentially and 125% year on year, marking the highest quarterly revenue in our company's history. DRAM saw a significant increase in sales of general server products, along with the expansion of HBM3E sales, leading to big growth of low 20% sequentially, above guidance of mid-10%. ASP rose -10% sequentially due to higher mix of premium products such as HBM and server DRAM, while prices rose across all products for three consecutive quarters. Particularly notable was HBM sales, which drove overall revenue growth by growing over 80% from the previous quarter and over 250% year on year. For NAND, although sales of enterprise SSD and mobile products increased, total bit shipments decreased by low single digits sequentially due to reduction in sales of discrete products and client SSDs, where demand recovery remains relatively muted. Meanwhile, ASP increased by mid- to -10% as prices rose across all products. Due to revenue expansion from rising memory prices, higher mix of value-added products and favorable FX impact, operating profit for the second quarter increased by 2.58 trillion won from the previous quarter to 5.47 trillion won, with an operating profit margin of 33%, up 10 percentage points from the previous quarter. Amidst rapid improvements of conventional DRAM profitability due to rising prices, the significant increase in sales of HBM-3 products contributed to the growth in DRAM profits. NAND margins also improved as a result of continuing ASP increases since fourth quarter of last year, expanded sales of enterprise SSDs, and ongoing focus on profit-oriented management. Depreciation and amortization expenses for the second quarter amounted to 3.12 trillion won, with sequential decline continuing due to reduced capital spending last year. EBITDA reached 8.59 trillion won with an EBITDA margin of 52%. Non-operating loss net of gain for the second quarter was 0.42 trillion won, including net interest expense of 0.28 trillion won, and net foreign currency related loss of 0.16 trillion won. As a result, net pre-tax income was 5.05 trillion won, and net profit for the quarter was 4.12 trillion won, and net profit margin was 25%. Consolidated cash and cash equivalents, including short-term investments at the end of second quarter was 9.7 trillion won, down 0.6 trillion won from the end of previous quarter. Meanwhile, interest-bearing debt was 25.2 trillion won, down 4.3 trillion won from a quarter ago. As a result, -to-equity and net -to-equity ratio recorded 42% and 26%, respectively, meaningfully improving compared to a quarter ago. Next, I'll discuss market outlook. Continuing from last year, demand for AI memory products is seeing another year of growth. Along with HBM, demand for high-density server DRAM and enterprise SD are also rising, and increasing contents for PC and smartphone is also expected in order to support AI features on the device. Although memory suppliers are increasing production utilization this year, they are prioritizing to support HBM and enterprise SSD, which are showing faster demand growth than conventional memory products. In particular, the memory suppliers allocate more wafer capacity for HBM, production capabilities for other DRAM products can be constrained as HBM consumes more wafer capacity due to larger die size. As a result, DRAM prices are increasing continuously when demand for traditional end markets has not yet fully recovered. In the second half of this year, strong demand from AI servers are expected to continue, as well as gradual recovery in conventional markets with the launch of AI-enabled PC and mobile devices. Looking at demand by application, the demand recovery in the PC market is trending relatively weaker than initial expectations. High inflation and cost burden due to rising memory prices are impacting not only downstream demand but also product lineups. Customers are preparing for the launch of high-spec products with AI features to create new demand, while also responding to the diverging demand trends by offering more affordable low-spec products. As a result, high-spec devices are expected to drive memory demand in the second half, and in the longer term, increasing memory content and wider adoption of low-power memory are expected to support optimal operation of AI PCs. Similarly, the smartphone market also showed more moderate demand recovery in the first half, but the release of new AI-enabled flagship and foldable phones are expected to help improve that demand in the back half of the year. Smartphones adopting AI functions require higher content than existing high-end models. The further releases of these products that are scheduled in the second half to next year are expected to drive demand. In the server market, AI servers are driving demand growth with exponential increase in the workload needs as generative AI evolves to multimodal models and also with the ever-increasing AI-related spending from big tech companies. Requests from customers for additional HBM supply this year and efforts to expand COVA's capacity in the supply chain also indicate strong demand for AI servers. In addition, general purpose server demand is also expected to gradually improve along with the impending replacement cycle for data center servers that were invested six to seven years ago, especially with growing needs to adopt new energy-efficient platforms. Now, I'll discuss our plans. Third quarter diagram bid shipment is expected to grow by low single-digit percent sequentially driven by further expansion of our HBM sales volume where strong demand is evident. Nand bid shipment is expected to decrease by -single-digit percent sequentially despite increase in ESSD sales volume, given yet soft-end demand in conventional applications and relatively high customers' inventory. Nand revenue growth, however, is expected to continue with rising prices and optimized product mix. HBM-3E sales increased significantly in the second quarter as demand gained momentum. In the third quarter, HBM-3E bid shipment are expected to be greater than that of HBM-3, resulting in HBM-3E accounting for more than half of total HBM sales volume this year. HBM-3E 12 high-product samples have already been shipped to major customers and is on track to start mass production in this quarter, and volume shipment to customers by fourth quarter. With a full product portfolio ranging from HBM-2E to HBM-3E 12 high-products, we plan to maintain our competitive advantage in the HBM market. Our DDR5 products have been successful in securing early market leadership with stable technology and quality since first generation products. Currently, we are the sole supplier in the industry offering 256-gigabyte products, maintaining our leadership of DDR5 products. In the second half of the year, we are planning to release 32-gigabit DDR5-based high-density server DRAM, as well as MCR-DEAM, which offers superior bandwidth compared to existing RDEM to target high-performance computing market. We're closely collaborating with major server companies to successfully launch products that satisfy customers' requirements. For NAND, we achieved notable results in terms of revenue and profitability in the second quarter. We are planning to focus more on strengthening product mix and availability of product lineups for future improvement. We are currently expanding sales of high-density enterprise SSDs, where demand is increasing, and we are also raising production utilization for some of our NAND fabs to support growing demand. With the demand increase for enterprise SSDs this year, we have increased our enterprise SSD sales by 50% in the second quarter compared to previous quarter, and we expect our annual ESSD sales to grow by nearly four times compared to that of last year. We plan to lead the market in the second half of the year with 60-terabyte ESSD, the only available -high-density product in the industry. We also plan to release 128-terabyte enterprise SSDs in the beginning of next year to maintain our continued edge in the -high-density ESSD market. In addition, we plan to support upcoming AIPC demand by offering high-performance and low-power PCIe Gen 5 client SSD that was developed in June. Construction for M15X, which was recently decided to support the growing demand for AI memory, as well as Yongin Cluster, which will be our next generation production site, is progressing as planned. Amid increasing infrastructure investment compared to past years, investment needs are also rising to meet demand of conventional DRAM, as well as HBM, which requires more wafer capacity than regular DRAM. Therefore, this year's CAPEX level is expected to be higher than what we expected in the beginning of the year. Nonetheless, our investment plans will be prudently decided based on -to-demand and profitability, and will be executed within the generated operating cash flow. We will continue to pursue financial soundness by executing investments efficiently, and this quarter's meaningful reduction in debt levels was in line with these efforts. Next, let me share our ESG management activities and performance. We issued Sustainable Report 2024, highlighting our ESG management activities and achievements during the year of 2023, as well as future commitments. In 2023, we achieved a significant growth in our ESG and we achieved company-wide renewable electricity adoption rate of 30% level for the second consecutive year. Also, we received international standard certifications from the British Standards Institution for our compliance and anti-bribery management system based on our compliance framework. These certifications recognize our achievements in complying with domestic and international standards and proactive prevention of related risks. This quarter, we announced a joint declaration for a greenhouse gas reduction with 28 members of the Eco Alliance, composed of material component equipment suppliers. The greenhouse gas emissions of the greenhouse gas industry and the participating companies account for approximately 50% of our scope-free emissions from purchased raw materials last year. We plan to implement various collaboration programs, such as operating ESG funds and participating in government-supported renewable energy projects to support our partners in achieving their greenhouse gas reduction targets. Thank you. With that, we are now ready to take your questions.

The first question will be presented by Nicolas Godot from UBS.

Yes, good morning and thanks for taking my question. You commented earlier on having seen some upside for a conversional server DRAM demand and I think we've seen the same in terms of the total server builds downstream. How did you see this translating into server DRAM demand upside on your side? Could you effectively quantify it versus what you expected earlier? And if we look at non-HBM server DRAM bit demand growth, could you quantify this as well for your expectations for 2024 and your initial view for 2025? Thanks.

Yes, hello. I'm Nicolas Godot from UBS. Thank you for giving me the opportunity to ask this question. You also mentioned that there has been a slight rise in the number of server builds downstream. Could you quantify this as a result of the growth of the non-HBM server DRAM bit demand and the initial view for 2025 in 2024? Thank you

for your question. Thank you.

Thank you very much for that question. While the ramp of investment in AI service that began last year continues, we're also seeing an improvement in demand for general purpose servers from some customers. This is not only because of the impending replacement cycle for cloud data center servers, which were heavily invested in 2017 and 2018, but also because of AI data center development, deployments that are driving demand for general purpose servers.

Not

fully. In particular, the rapid growth of AR servers with high power consumption has led to a move to upgrade existing conventional servers to new server platforms with significantly improved power efficiency to reduce operating cost and free up power across the data center. A server DRAM excluding HBM is expected to see -20% level of additional power consumption demand growth this year and next year as AI technology expands from training to inference driving robust AI server demand along with replacement demand for general purpose servers.

Next

question please.

The next question will be presented by Peter Lee from City Group.

Hello, this is Lee from City Group. I would like to ask a question about investment. You have mentioned earlier that the demand for AI servers has increased.

I am Lee from City Group. Thank you very much for this opportunity to ask my question. I have a question about investment. With the recent announcements of increased investment and capacity utilization by memory companies, concerns have been raised about supply growth beyond 2025. So what is your company's view and direction regarding this matter? Thank you very much for that question. So based on past experience, you may be concerned that increased investment by suppliers may lead to oversupply, but the current investment and ramp-up of production is centered on HBM, which has a much different market structure and production characteristics than conventional DRAM. So it's not really reasonable to assume that increased investment will automatically lead to oversupply. As we know, given the die-size penalty of HBM and the level of clean room required, bit growth is limited even as investment increases, and the limited production growth is expected to be exacerbated as HBM generations are upgraded. Furthermore, HBM is basing its investment decisions on at least the year's worth of customer contract volume, so increased investment in HBM means increased product orders. Demand for HBM is growing rapidly due to increased competition in the AI industry, resulting in a supply shortage even as suppliers expand their capacities. We expect the memory industry to evolve from a structure of mass production of a small number of products to a low-volume production of a wide variety of different products and to become an on-demand industry that provides long-term supply of the products that the customers want. We will work closely with our customers to increase the visibility of demand and focus our investments on products with strong customer demand so that we can contribute to the stable growth of the market.

Next question, please. The next question will be presented by J. Kwon from JP Morgan.

I have a question about specific investment directions. You said in your presentation that you will be investing largely within the operating cash flow that is generated. Can you elaborate more on what SK Hynexis investment direction for this year and next year is?

I will answer your question. First of all, thank you for your question. The HBM product demand has increased this year due to the PEP investment decision for the long-term clean room, which is more than expected.

Let me answer your question. Thank you very much for that question. Our investment this year is higher than planned at the beginning of the year due to higher than expected demand for HBM products and our decision to invest in fabs to secure clean rooms for the mid to long term.

In addition, in 2025, not only HBM, but also the general memory demand will increase. Therefore, we need to invest in high-level infrastructure such as MC5X and Yongin Cluster to make the right decisions. Therefore, we expect that the investment will increase in comparison to the past average.

In addition, in 2025, demand for not only HBM, but also general memory is expected to increase further requiring significant investment into infrastructure such as MC5X and Yongin Cluster to prepare for this. Therefore, we expect the scale of investment to increase compared to the historical average.

In the future, we need to consider the future growth of infrastructure investment as a leading player in the AI market. The long-term investment scale is reflected and is being deleted. The annual investment plan is reflected at the time of market demand and is being

Given our position as a leader in the AI market and the expected growth and demand, infrastructure investments are essential to secure future growth. Our long-term investment plan reflects this, but we have the flexibility to execute our annual investment plan according to the market demand at the time. Even excluding this year's increased investment, our operating cash flow is improving rapidly and we will continue to ensure that our financial strength is supported.

Next

question. The next question will be presented by Dong-Hee Han from SK Securities.

I am curious

about your strategy for managing capacity for HBM and general DRAM. There are many views that DRAM supply will be tight until next year as demand for HBM continues to be strong and demand for on-device AI starts to appear in earnest from next year. Compared to HBM, whose supply is still low, the demand for HBM is still high. The price of general DRAM is adjusted quarterly according to supply and demand and profitability is improving rapidly. How does the company plan to manage the capacity between HBM and general DRAM to maximize DRAM profitability? Let me answer your question. As you have mentioned, the available capacity for general DRAM production has remained at a reduced level since the production cutbacks, even though suppliers are increasing their utilization rates due to the rapidly growing demand for HBM. While overall capacity is expected to increase next year due to the increased industry investment, a significant portion of it will be utilized to ramp up production of HBMs. So the tight supply situation for conventional DRAM is likely to increase in the near future. Furthermore,

if the demand recovery for conventional DRAMs continues to increase, the demand for HBMs will continue to increase.

Furthermore, if the demand recovery for conventional DRAMs accelerates, it is possible that the profitability of conventional DRAMs, which are priced on a quarterly basis, may be higher than that of HBM, which is priced on an annual contract basis.

In the long term, the market will be able to maintain a stable growth and stability, considering the various aspects of the market, as well as the relationship with the customers. In the long term, the market will be able to maintain a stable growth and stability, and the profitability of DRAMs will be greatly increased.

As HBM has many new aspects that make a difference from conventional DRAM, we will seek to maximize DRAM profitability over the long term rather than the short term, taking into account the growth and stability of HBM's revenue, our position in the market, and our relationship with the customers.

Next

question, please.

The next question will be presented by Sungkyu Kim from Daiwa Securities.

Hello. Thank you for the opportunity to ask a question. First of all, congratulations on your performance. I have a question about HBM. In the case of HBM 3E 12-stage products, it is known that the packaging is difficult compared to 8-stage products. When do you think we will be able to reach the growth and stability rate? And when do you think we will see a crossover between 8-stage and 12-stage products? Thank you.

Thank you very much for this opportunity to ask my question. First of all, let me congratulate you on your excellent performance. I have a question on HBM. It is said that the packaging technology of the 12-high product is said to be more difficult than the 8-high product. So when do you expect to reach the material stage? And when do you think the HBM 3E 8-high and the 12-high products will crossover each other? Those are my questions. Thank you for the question. As I have noted previously, the HBM 3E 12-high samples were provided to customers in May, and we are currently preparing for mass production. And we plan to start mass production this quarter and start supplying customers in Q4.

The demand for

the 12-high product is expected to increase in earnest from next year, and we expect the supply of HBM 3E 12-high to exceed that of 8-high in the first half of Although it is true that the technical difficulty involved for the 12-high product is higher than the 8-high product, we believe that our experience in mass producing the HBM 3E 12-high and the successful development and production ramp-up of the 8-high product will shorten the time required to ensure stable quality and yield.

Next question please.

The next question will be presented by Junhee Lee from Goldman Sachs.

Thank you for the question. I have a question about HBM. The product launch time of HBM's main customers has been shortened from two years to one year, so the HBM product development period seems to be shrinking. I am curious if this change in the industry is advantageous or disadvantageous to the existing mass-produced companies, and if there are any changes in the mid-term or long-term HBM market item outlook that you expect to see. Thank you.

Thank you very much for this opportunity to ask my question. I also have a question related to the HBM. The HBM's product development period seems to be shortening as major GPU customers have shortened their product release intervals from two years to one year. Do you think these industry changes are favorable or unfavorable for SK Hynex as HBM market leader? Does this change the -long-term HBM time outlook?

Thank you for your question. The AI market is expanding much faster than expected, and the growth rate of related industries is also increasing, while some customers are responding to the growth rate of the market by pushing forward the new product release period.

Thank you for the question. As the AI market is expanding faster than expected and related industries are growing faster, some customers are responding to the market growth by accelerating their new product release cycles. Faster GPU release cycles require shorter development cycles for the HBMs employed in those GPUs, and this can be a burden for the DRAM companies. However, the environment is likely to be favorable for industry leaders who can respond to these customer demands, especially as time to market is of the essence, and it is important to minimize risk by partnering with industry leaders who have the right combination of technology competitiveness, mass production experience, and a scale. We also believe that shorter time to market for new products will help to stimulate market demand, and this is expected to expand the size of the AI market and positively impact the generation of demand for HBMs.

Next question, please. This is from Seo Juil. The next question will be presented by Ricky Seo from HSBC.

Thank you for this opportunity to ask my question. I also have a question about the HBM4. So in the HBM4 product range, there is the 12 high product and the 16 high product. And there is a lot of... So my first question is, when will the HBM4 12 high and the 16 high product be released? And my second question is, there's currently a lot of discussion about when to apply the hybrid bonding technology. So when do you intend to apply the hybrid bonding technology in the HBM4 16 high? And my third question is, what are the considerations made when deciding to use the technology?

Thank you for your question. The HBM4 is expected to be released from the 12th half of next year. And we plan to apply the advanced MUF technology

to the HBM4.

The hybrid bonding technology that you

have referred to is a technology that we are researching to reduce the height of the packaging. But we are also researching the high quality of the packaging. We are also trying to apply joining the pads of the copper wiring directly to each other without micro bumps between the chips so that we can prepare for the ever increasing number of

stacks.

The effectiveness of applying the hybrid bonding technology may vary from company to company due to the different packaging technologies currently used by the HBM suppliers and their different capabilities and resources. Furthermore, the mass production application of hybrid bonding requires further technological advancement and thorough characterization and quality verification at the system level in collaboration with customers and partners.

We are planning to develop the HBM4 16 high in preparation for the high quality of the product. We are currently reviewing both the advanced MUF technology and the hybrid bonding technology. We are planning to choose the best way to apply the technology to the customer.

We are reviewing both the advanced MRMUS and the hybrid bonding methods to select the most optimal method to meet customer demands. Next question please.

The next question will be presented by Sunwoo Kim from Merits. Hello,

this is Sunwoo Kim from Merits. I would like to ask you a question about the land Bicross. We are seeing a significant increase in the price of the first and second quarter. In contrast, our sales volume seems to be a bit weak. We seem to have a little bit of a downfall in the second quarter and a small drop in the third quarter. This trend seems to be forcing the price of the product to rise. How long will this trend continue? Hello,

this is Sunwoo Kim from Merits. Thank you very much for giving me this opportunity to ask my question. I have a question related to the Bicross of NAND. You have very strong performance for the first quarter and the second quarter. However, in comparison to that performance, your shipment level seems to be rather weak. The second quarter shipments have been below guidance and for Q3 as well, it is expected to be down Q&Q. So how long do you think this trend will continue going forward?

Thank you for your question. Currently, NAND has a clear demand increase. In addition to enterprise SSDs, the demand for general applications such as PC and mobile is still showing a smooth recovery rate. So currently, we are in a situation where we are responding to the market by maintaining the optimization of investment production and sales strategy based on profitability.

For example,

last year, we reduced the investment in NAND and reduced production in Gamsan. This year, we are increasing production in Gamsan.

For instance, we are ramping up production on a limited base this year, which was reduced last year due to NAND investment minimization and production capacity cuts. We are focusing this year on select applications where demand is growing.

Although the market may seem to be in a bad shape, NAND has a strategy to maintain the market share rate based

on the product mix and sales strategy based on the demand. This year, we are committed to maintaining our market share by revenue through our profitability-focused product mix and sales strategy based on actual demand. In the third quarter, while expanding sales for enterprise SSDs, we are also working on increasing the demand for some of the products. We plan for a -single-digit shipment decrease in some applications due to low demand and customer inventory conditions. However,

in the fourth quarter,

we expect shipments to return to growth as more bits are produced internally and the external demand environment improves.

Next question is from Shin Seok Hwan from Daesin Procurement.

Thank you.

I'm Shin Seok Hwan from Daesin Securities. Thank you very much for this opportunity to ask questions. My question has to do with the reversal of inventory valuation allowance. So what was the size of the reversal of the inventory valuation allowance in the second quarter? And if prices continue to rise in the second half of the year, is there a possibility of further reversals? Let me take the question on inventory valuation allowance reversal. So our DRAM sales volume in the second quarter exceeded our guidance and our finished goods inventory level at the end of the second quarter decreased from the end of the previous quarter as sales of the first quarter decreased. The DRAM and NAND continued to exceed production volumes. The DRAM and NAND prices continued to increase resulting in a reversal of inventory valuation allowance of approximately 300 billion Korean won in the second quarter. As the pricing environment for DRAM and NAND is expected to remain stable going into the second half as well, there is the possibility of further reversals taking place. But as the majority of the inventory valuation allowance has been recognized during the downturn has been reversed, further reversals are expected to be minimal.

Next question please. The next question will be presented by Minsuk Choi from Korea Investment and Securities.

Hello, I am Minsuk Choi from Korea Investment and Securities. I will ask you a question about HBM. HBM demand is rapidly increasing and even though the market is recognized for our leadership, I know that you are communicating conservatively about increasing HBM cappa. I would appreciate it if you could share your HBM cappa operation plan with the reason why HBM cappa and volume do not increase aggressively. Thank you.

Thank you very much for that question. Contraries to some concerns, AI-driven demand has continued to exceed expectations and is growing this year.

We have been told that the company will expand its HBM supply by two times compared to last year. This year, we plan to expand our supply of HBM quickly based on the increased TSP cappa and the 1B nano conversion investment. We expect to achieve a growth of about 300% HBM sales compared to last year.

We have previously announced that we will more than double our TSP capacities from last year's level to meet the growing demand this year. We expect to rapidly expand the supply of HBM 3E based on the increased TSP capacities and 1B nano conversion investment this year, resulting in HBM revenue growth of over 300% compared to last year. That is our expectation.

We are very

carefully crafting our investment plans and capacity related plans by reflecting the demand in the downstream and also in the supply chain situation. Most of next year's cappa has already been largely agreed with the customers and we expect shipment growth to more than double compared to this year.

The last question will be presented by Youngho Ryu from NH Investments and Securities.

I am Youngho Ryu from NA Securities. I have a question about NAND performance. As you have already noted, the ESSDs are experiencing strong demand growth this year. How is the demand for ESSD presently compared to your expectations at the beginning of the year? What is your outlook and strategy for ESSD going forward?

Thank you for your question. Last year, the A-type server investment was concentrated in the limited IT budget, so the demand for the general server was greatly reduced. As a result, the demand for the enterprise SSD was not able to avoid a slump. However, this year, the investment in the general server has increased compared to last year. The demand for the AI in DRAM has also been expanded to the NAND storage area. The demand for enterprise SSDs, which are based on high-end products, are growing to a level that greatly exceeds the initial expectations.

The demand for the ESSD, which was previously limited to DRAM, is spreading to NAND storage. So, ESSD demand is growing at a level that is significantly exceeding expectations at the beginning of the year, mainly for high-density products.

Due

to the high power consumption of the AI servers, the preference for low-power storage products is expected to grow. And we plan to respond to this growth with a diverse lineup of enterprise SSDs. For

example, we currently provide more than 60 terabytes of enterprise SSD products based on QLC. The quality of the products is also competitive. Next year, we plan to continue to maintain a high-end product leadership by providing 128 terabytes of products and 256 terabytes of products.

We are the only company in the industry to offer QLC-based enterprise SSD products over 60 terabytes. And the quality of our products is highly competitive. We plan to maintain our high-density product leadership by introducing 128 terabytes and later on 256 terabytes of products later this year. Our ESSD products also have very strong QoS advantage based on our deep understanding of data center workloads. QoS stands for quality of service, which means that the response time to read and write data is short and reliable, which in turn means less time waiting for the SSD to respond. This can increase the efficiency of the GPU. In the future, power efficiency will be a critical factor for AI servers and high-density ESSD products with strong performance and reliability will be very attractive to customers in terms of TCO. So we are looking forward to further growth in the high-density storage market for data centers.

As I said earlier, the ESSD product sales will grow fourfold compared to the previous year.

The sales of ESSD

products will be almost half of the total land. We will continue to strengthen our position as the top two players in the growing enterprise SSD market.

Based on these competitive advantages, we are going to increase our sales volume to fourfold that of the previous level and we will expand the proportion of ESSD sales to half that of NAND this year and strengthen our position as the top two player in the high-worth ESSD market. With this, we would like to conclude the SK Hynix 2024 Q2 earnings release conference call. Thank you very much.