Sk Hynix Inc S/Gdr 144A

Good morning, everyone. This is CFO Kim Woo Hyun. Allow me to first introduce the company's performance for the fourth quarter of 2024. Despite a delay in the recovery of demand for consumer products like PCs and smartphones, the demand for AI memory products and data centers where investments are rapidly growing drove overall demand. As a result, we significantly increased the sales of AI memory products, including HBM and enterprise SSDs, and achieved record high quarterly revenue of 19.77 trillion won for the quarter, up 12% from the previous quarter and 75% compared to the same period last year. In DRAM, Sales increase of high-value added products, such as HBM3E and Server DDR5, drove a mid-single-digit percent sequential increase in BIT shipments. Despite price decline in legacy products like DDR4 and LPDDR4, blended ASP rose by approximately 10% due to product mix effect. HBM saw another quarter of strong growth. accounting for over 40% of DRAM sales in the Q4, and shipments of HBM3E 12 high products also began as planned during the quarter. In NAND, although sales of enterprise SSDs increased, inventory adjustments by PC and mobile customers led to a reduction in purchasing demand, resulting in a mid-single-digit percent decrease in both shipments and ASB quarter-on-quarter. Sales contribution from high value-added products, such as HBM and enterprise SSDs, increased significantly, enabling us to maintain relatively stable revenue and profits, even during market fluctuations, and reflect our improved business structure. As a result, operating income in Q4 increased by $1.05 trillion to $8.08 trillion, and operating margin rose by 1% point to 41%, again marking record high operating profit following the previous quarter. Depreciation and amortization for Q4 increased slightly from last quarter to 3.17 trillion won, with EBITDA reaching 11.25 trillion won and EBITDA margin of 57%. Non-operating gain net of expenses reached 1.5 trillion won. Notable items include foreign currency-related net gain of 0.62 trillion won due to strong dollar against won, and other non-operating net gain of 0.87 trillion won, which contains gain from the partial sale of stake in system IC Ushi. As a result, net income before tax was 9.58 trillion won and net profit for the period was 8.01 trillion won with net profit margin of 41%. Now moving on to the annual performance for 2024. 2024 was marked by a significant surge in AI memory demand driven by data centers. thanks to our leadership in AI memory technology and our profit-oriented business decisions, consolidated revenue for 2024 reached 66.2 trillion won, surpassing the record high revenue achieved in 2022. Operating income also exceeded the performance of past super cycle period in 2018, reaching 23.5 trillion won. As AI memory demand grows, the memory industry is transitioning from a commodity market driven by volume and price to a customized market focused on high performance and high quality products. 2024 results were especially meaningful in that we saw the possibility of memory companies generating stable profits by securing the ability to meet customers' high expectations, and support their needs on time. Following our achievement of supplying industry's first HBM3E high products in March last year, we were also the first in the industry to support HBM3E 12 high products in fourth quarter, reinforcing our position as the leading HBM player. Backed by a timely supply and sales expansion of HBM3E8 and 12 high products, annual HBM sales grew more than 4.5 times compared to last year, contributing significantly to our record-breaking DRAM performance. Additionally, we rapidly expanded sales of DDR5 and LPDDR5 products. which offer competitive performance and power efficiency, strengthening the profitability of our conventional DRAM products. Despite limited annual shipment growth in NAND, sales of higher priced enterprise SSDs increased by more than 300% year on year, leading to not only a return to profitability for NAND in 2024, but also record annual revenue and operating income. We also secured new demand areas by proactively developing high density and high performance storage solutions required for the AI infrastructure. At the end of last year, we launched 61 terabyte and 122 terabyte QLC-based enterprise SSD products further enhancing our high-density enterprise SSD lineup. As of year end, our consolidated cash and cash equivalents, including short-term investments, amounted to $14.2 trillion, up $5.2 trillion from end of last year's levels. Interest-bearing debt decreased by $6.8 trillion from the previous year to $22.7 trillion, and as a result, Our debt to equity ratio and net debt to equity ratio improved meaningfully, reaching 31% and 12% respectively. Due to the substantial profit increase in 2024, our annual free cash flow, which is cash flow from operating activities, less acquisition of property, plant and equipment, amounted to 13.9 trillion won. Following our former dividend policy, the Board of Directors confirmed total fourth quarter dividend of 1,305 won per share, which is 301 per share as fixed dividend, and an additional dividend of 1,005 won per share, which is equivalent to 5% of 2024's annual free cash flow per share. In accordance with the amended articles of incorporation the dividend record date for the last fiscal year will be set of February 28 2025 and the actual dividend amount may be adjusted based on changes in the number of Treasury shares until the dividend record date. Next is the company's market outlook and plan. 2025 memory demand outlook. is clouded by inventory adjustments from PC and smartphone OEMs, as well as strengthened protective trade policies and geopolitical risks. Nevertheless, supply-demand conditions are expected to gradually improve towards the second half of the year as IT device demand improves and inventories are cleared. The demand-growth momentum for AI memory products that began in 2023 is expected to continue to be the driving force behind this year's market growth. With the full fledged beginning of the AI era, memory market demand is moving towards higher performance products from low priced products. As a result, polarization of memory market demand is expected to become more severe. PC shipments this year are expected to grow by low to mid single digit percent, driven by corporate PC replacement demand from end of support for Windows 10, as well as effects from AI PC shipments kicking in. AI PC penetration is expected to reach around 30% to 40%, leading to an increase in adoption of not only 16 GB DRAM, which is known to be the minimum required DRAM density for AI PC, but also 24 GB and 32 GB densities. The smartphone market is expected to grow by a low to mid single-digit percent, similar to last year's level. The penetration of AI-enabled smartphones is expected to grow to approximately 30%. driving demand for higher contents as well as higher performance mobile memory like LPDDR5X and LPDDR5T. Furthermore, the inclusion of smartphones and tablets to China's consumer subsidies is also expected to drive positive developments on set demand this year. Strong growth of server market demand is expected to continue, driven by big tech companies' ongoing competitive investments to secure advanced AI training and inference capabilities. Recently, some big tech firms have even announced annual AI data center investment plans that far exceed market expectations underscoring the importance of large-scale infrastructure as a key to gaining AI competitiveness. As a result, investments in AI servers are expected to continue expanding for the foreseeable future. Demand growth for HBM and high-density server DRAM is also expected to continue, driven by more launches of generative AI-based services and agents. combined with rapid rise in demand for computing resources to support the growing importance of inference technologies in AI. Additionally, within the next two to three years, demand for custom HBM designed to meet the diverse needs of AI customers is also expected to grow considerably. Meanwhile, considering big tech companies' demand to replace legacy platforms to improve power and space efficiency, overall server market, including AI and general purpose server, is expected to grow in the high single digits range this year. All in all, this year's DRAM demand is projected to grow by mid to high 18%. while NAND demand is expected to increase by low teen percentage. Now I will discuss the company's plans for this year. Considering the seasonally weak period for IT devices and relatively high memory inventory levels in the supply chain for some end markets, we anticipate a low teen percent sequential decrease in first quarter DRAM bit shipments, and high 10% decrease in NAND shipments. Since the second half of last year, decoupling of demand between AI memory and conventional memory became more pronounced, and this led to differentiating product mix and sales strategies among suppliers. Based on our differentiated AI product competitiveness, and profit-oriented business decisions, we plan to maintain stable performance even during the period of market corrections. This year, our HBM revenue is expected to grow by over 100% compared to that of last year, driven by strong customer demand. In particular, demand from ASIC customers is expected to increase meaningfully, expanding our customer base. Volume shipment of HBM3E 12 high products is proceeding smoothly, and we anticipate 12 high products to account for more than half of the total HBM3E shipments by first half of this year, as previously planned. In November last year, we developed the industry's first HBM3E 16 high product based on advanced MRMUF process. further demonstrating our leadership in HBM technology. This year, we plan to complete development of HBM 4.12 high product and prepare for mass production as the product will be mainstreamed from 2026. By supporting the product on time of customers' needs, we plan to maintain our leadership in the HBM market. Additionally, by migrating to advanced nodes, We are preparing to increase production of DDR5 and LPDDR5 products, but we have solid technological competitiveness and are showing better demand. This will allow us to produce more competitive products compared to latecomers. To meet the upcoming demand for on-device AI, we are also preparing various product lines such as LPCAM2 and GUFS which offer improved data processing speed and power efficiency, and plan to supply them in time for increasing customer demand this year. For NAND, considering delayed demand recovery in a wide range of applications other than enterprise SSDs, we will continue our profit-focused approach and sales strategy that is aligned with demand, as we have done last year. Meanwhile, we are proactively preparing manufacturing infrastructure to support next generation technologies and products in a timely manner and continue leadership in those markets. M15x fab is currently under construction in Cheongju and is scheduled to open in the fourth quarter of this year. The first fab in the Yongin is also scheduled to begin construction this year, with the target FAB opening in the second quarter of 2027. The construction of these new FABs will lead to a marked increase in infrastructure-related investment this year, though overall investment increment will be limited. However, we will continue to follow the principle of investing only in products that ensure profitability. and make flexible investment decisions based on changing market conditions. In addition, we have completed an advanced packaging investment agreement with the state of Indiana in the US and signed a final funding agreement with the US government under the CHIPS Act for approximately $660 billion won at the end of last year. We will secure advanced packaging facilities to ensure our ability to produce a variety of customized memory products on time and to meet the increasingly complex demands of our customers. Finally, let me introduce our new shareholder return policy. In November 2024, we announced a new shareholder return policy to be implemented over the next three years. We have determined that in order to further enhance our corporate value, it is essential to strengthen our position as a leading AI memory company through continuous investment, while also swiftly improving financial stability that was weakened during the recent downturn. To this end, we have set securing positive net cash and appropriate cash levels as our financial goals, which will enable stable business operations and investments to maintain competitiveness, regardless of future market fluctuations. These objectives have been incorporated into our current shareholder return policy. First, the annual fixed dividend per share will be increased by 25% from 1,201 to 1,501, which increases the total cash dividend paid to shareholders to 1 trillion won per year. This ensures that the total cash dividends paid during this policy period will be at least the same level as that paid under the previous policy. However, going forward, only the fixed annual dividend amount will be paid, and the 5% of annual FCF that was distributed under the previous policy will be used to strengthen our financial soundness. At the same time, we will maintain to use 50% of accumulated three-year FCF as a resource to provide total shareholder returns. Any additional returns beyond the annual dividend will be made within the scope of maintaining financial goals after the policy term ends. Through this new shareholder return policy, we expect to enhance our financial soundness, allowing us to steadily improve our corporate value even amid market fluctuations. And as our performance continues to improve, we expect to be able to offer additional returns to shareholders. Moving forward, we will strive to consistently improve our performance based on our leadership in our AI space and ultimately increase the scale of returns to shareholders over the long term. Thank you. With that, we are now ready to take your questions.

Now, Q&A session will begin. Please press star 1 that is star N1 if you have any questions. Questions will be taken according to the order you have pressed the number star 1. For cancellation, please press star 2 that is star N2 on your phone. The first question will be provided by Kim Seon-woo from Merit Securities. Please go ahead with your question.

Hello, I'm Kim Seon-woo from Merit Securities. I have a question about commodity memory uphangs. Since the second half of last year, the price of commodity memory uphangs and supply increases in Chinese companies have been decreasing. It seems that this trend will probably continue until the first half of the year. I would appreciate it if you could tell us how you see the overall situation this year. Do you think this will end with a short-term adjustment or do you think it will be a similar adjustment period from the second half of 2022 to the first half of 2023? Thank you.