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 one 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 HBM3E12 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 ASP 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 won to $8.08 trillion won, 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 HBM-3E high products in March last year, we were also the first in the industry to support HBM-3E 12 high products in the fourth quarter, reinforcing our position as the leading HBM player. Backed by a timely supply and sales expansion of HBM-3E 8 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% -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 TB and 122 TB 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-1, up $5.2 trillion-1 from -of-last year's levels. Interest-bearing debt decreased by $6.8 trillion-1 from the previous year to $22.7 trillion-1. And as a result, our -to-equity ratio and net -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-1. Following our former dividend policy, the board of directors confirmed total fourth-quarter dividend of ,305.1 per share, which is $301.1 per share as fixed dividend, and an additional dividend of ,005.1 per share, which is equivalent to 5% of 2024's annual free cash flow per share. In accordance with the amended article of the corporation, 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 -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 teen percent, 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 teen percent 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 product 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 percent 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 MRMOS process, further demonstrating our leadership in HBM technology. This year, we plan to complete development of HBM412 high product and prepare for mass production as the product will be mainstream 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 that we have solid technological competitiveness and are showing better demand. This will allow us to produce more competitive products compared to late comers. To meet the upcoming demand for on-device AI, we are also preparing various product lines such as LP Chem2 and 2UFS, 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 a 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 and 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 our corporate value. We are also working to improve 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 $1.1 trillion 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 3-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 Sunwoo from Merit Securities. Please go ahead with your question.

I have a question about commodity memory up-hanging. Since the second half of last year, commodity memory demand has been increasing, and the price of most products has been decreasing since April. I think this trend will continue until the first half of this year. How do you see the market overall this year? The question is,

commodity memory prices have started to decline from Q4 due to weak demand and increased supply from Chinese manufacturers, and this trend seems likely to continue into the first half of the year. How do you view the memory market for this year, and do you see it as a short-term adjustment, or do you expect a correction similar to 2023? Thank you very much for the question. Our first answer, the part related with the DRAM. As you mentioned, commodity memory prices began to decline from Q4 last year due to a continuous laggage demand from major applications. The price decline has been particularly evident for DDR4 and LPDDR4 products, which are impacted by high inventory levels and increased supply from Chinese manufacturers. We anticipate that commodity memory market will continue to show weak pricing trend in the short term because of the influence from the slow seasonal demand in the first half and inventory adjustment by customers. However, starting in the second half, we expect increased demand for high-end high-density PC and smartphones, and this demand coupled with supply expansion of DDR5 from memory manufacturers is unlikely to cause significant imbalance between supply and

demand.

Therefore, we predict that there will be a continuous growth in HBM AI memory market, whereas conventional GBM market will go through a gradual smooth correction. And most suppliers are focusing investment on HBM, where demand visibility is high and profitability is secured. This cautious investment focusing on HBM and prioritizing AI memory production over commodity products with limited capacity suggests that the cycle this time will be different from past downturns. Let

me

also touch upon the NAND. NAND has been more significantly affected by demand slowdowns in traditional applications, and some suppliers have already announced production cuts. We also plan to continue our flexible investment and production strategies that we have maintained since 2023 to focus on profitability. In this slide, we anticipate that NAND will also experience a milder correction compared to previous downturns.

However,

for the market situations to improve, both supply adjustments and a recovery in end demand are critical, and the pace of NAND market recovery will ultimately depend on how the market will develop.

We are also planning to continue to develop HBMs in the near future, and we are also planning

to

continue to develop HBMs.

HBM 4 supply will initially begin with 12 high products and 16 high products will follow based on customer demand, and shipments are expected in the second half of next year.

Regarding 16 high

packaging technology, we anticipate that we can leverage our experience with advanced MRMUF process, which was first applied in HBM 3, to mass produce HBM 4 16 high products.

For

the first time in HBM 4, we plan to use logic boundaries for the base die to enhance performance and power efficiency. We are guided by principles of responding to market changes with agility and

flexibility.

We are also aware that the market will be more focused on HBMs and infrastructure, and infrastructure investment is expected to increase significantly compared to last year. We will continue to optimize resource allocation for each product to expand FCF and maximize investment efficiency by prioritizing technology transitions and also seize growth opportunities through agile market responses.

The following question will be presented by Kim Dong Won from KB Securities. Please go ahead with your question.

How much DDR4 and LPDDR4 proportion be reduced compared to last year?

In this year's DRAM, high-performance high-end products such as HBM and DDR5 are expected to increase demand by increasing demand, while DDR4 and LPDDR4 legacy products are expected to increase demand decoupling by product.

Our competitiveness in HBM and DDR5 underpins our leading position in the DRAM market, and we will continue to scale down the production of legacy products like DDR4 and LPDDR4 and streamline and clear inventory.

As a result,

the share of legacy products such as DDR4 and LPDDR4 in our revenue is

limited by Ryu Young-ho from NH Investment and Securities. Please go ahead with your question.

I would like to ask

a question in relation with servers. Server DDR5 demand last year was very strong. Are there any signs of slowdown in customer demand recently? What is your assessment of the hyperscale customer's DRAM inventory level? Thank you for the question. Hyperscale customers have continuously expanded investment to secure high-performance computing infrastructure. Accordingly, AI servers have also continuously exhibited strong demand growth, and also investment in conventional servers have also been made alongside in tandem, which ensured rubber server DRAM demand this year following last year.

Also,

when establishing AI data center, there is a growing emphasis on efficient space utilization and high energy efficiency. Taking into consideration the replacement cycle of servers where massive investment was made in 2017 and 2018, we expect that this year we will see a strong surge in

replacement demand.

In addition, with new CPUs that support DDR5 ramping up this year and customers holding low DDR5 inventory levels, server DRAM demand particularly for DDR5 is expected to remain very strong. Even if DDR5 prices undergo temporary adjustments, server customers will still have opportunities to build inventory at favorable price, and therefore we don't really have a serious concern about potential slowdown in DDR5 demand. By proactively addressing the demand for high-performance, high-density server DRAM modules this year, we will continue to secure a leadership in the server market.

Next

question.

The following question will be presented by Peter Lee from City Group. Please go ahead with your question.

Thank you. Based on our excellent 1B nanometer technology, we completed the development of 1C nanometer products in the second half of last year, and we also built potential for mass production.

Our 1C nanometer-based DDR5 product has a maximum support synchronization speed of 9.2 Gbps per second, which is about 28% higher than previous generation products, and the power of

the processor. We also built a high-performance processor that can handle up to 10,000 volts of power Our 1C nanometer-based DDR5 product supports a maximum operating speed of 9.2 Gbps, approximately 28% faster than previous generation, with over a 9% improvement in power efficiency. As we transition to the AEI era, which demands rapid data processing and low power consumption, this product is designed to be optimized to meet future server demand.

In

addition, 1C nanometer products exceeded the target yield for the initial ramp-up phase already in the development stage, indicating that the expanded production and ramp-up

could be

achieved. While we will begin applying 1C nanometer to ramp-up conventional DRAM products starting from the second half, a significant portion of investment this year will focus on HBM and infrastructure, where we already secured customer demand. Therefore, we will keep a close eye on future demand and supply dynamics in order to make the right investment decisions for ramp-up.

We will also continue to maintain market leadership through the development and supply of the next generation of HBM products by applying 1C nanometer to the HBM4E.

the HBM4E in the future in order to ensure the timely development and supply of the next generation HBM products to secure and maintain market leadership.

Next

question.

The following question will be presented by Handonghee from SK Securities. Please go ahead with your question.

Hello, this is Handonghee from SK Securities. I have a question about land. If the price of land continues to decline, I think the land industry will likely be a little less competitive in the second half. In contrast, do you have any additional plans for land? If so, what are your opinions on the size and duration of the land?

I have one question regarding land. If the current downward trend in land price continues, there is a possibility that the industry might return to losses in the second half of the year. Do you have any additional plan for a land production cut? If so, to what extent and for how long?

I will answer. During the downturn of the last 22-23 years, we have been operating with legacy tech as the core. Last year, we increased some of the production of wafer to meet the increasing enterprise SSD demand.

During the previous downturn, we cut production mainly in legacy technologies while increasing the production of wafer in 2024 to meet rising SSD demand. However, for products other than enterprise SSD, we have maintained limited production considering the delayed recovery of demand in general applications.

We will maintain the same operating standards until demand is confirmed. We will adjust production in accordance with market conditions and focus on the normalization of

stock.

Thank you for your answer.

Thank you for the opportunity. When do you expect to finalize HBM supply volumes for 2026? And do you think the strong growth trend of HBM be sustained in the future? We, SK Hynex, have already initiated discussions with some customers regarding HBM supply volumes for 2026. We expect that we will be able to gain some visibility for most of the next year's volumes by the first half of this year. Considering the high investment cost and long THE associated with the HBM business, we aim to enhance business stability and visibility by securing a long-term contract through a proactive negotiation with customers.

As we mentioned

earlier, the AI market holds significant growth potential for exceeding our expectations, and they are mainly driven by advancements in learning and inference technologies, as well as the integration of AI services across different industries. The fourth industrial revolution, previously represented by big data, artificial intelligence, robotics, and autonomous vehicle, is now transforming industries with strong and visible AI innovation. This accelerating industrial transformation is expected to continue, continuously generate high computing demand, and therefore we have no doubt about the sustained long-term growth of HBM demand.

Next question.

Let me ask you a simple question. This is performance. Could you please elaborate on the significant non-operating profit record and the factors that influence it? Our subsidiary SK Hynek system held a 100% stake in System IC UC, and they completed the process of converting the System IC UC into a joint venture last November. During this process, some of our stakes were divested, resulting in approximately 1.3 trillion won in gains, and it was recognized as non-operating income in Q4. In addition, in December, Kioxia went public, and our investment assets in Kioxia were re-evaluated to reflect the year-end closing price, and this resulted in the evaluation loss of approximately 100 billion won. In addition, due to rising exchange rate, we recorded a net foreign exchange gain of approximately 600 billion Korean won, and overall, all in all, the total non-operating profit for Q4 amounted to about 1.5 trillion won.

We will take

two more questions. Next question, please.

The following question will be presented by Lee Joon-hee from Goldman Sachs. Please go ahead with

your question.

Thank you for your question. I will read the answer. Since the second half of last year, the price of Chinese D&M suppliers, such as DDR4 and LP4 products, has been increasing, and as the water and oil prices have been increasing, the price of Megasi products has been decreasing.

Since the second half of last year, Chinese D&M manufacturers have expanded the supply of DDR4 and LP4 products, and coupled with slow demand, the prices of these legacy products have continuously dropped. However, the technologies applied by these late-comer companies are significantly behind the advanced notes used by major leading suppliers, and therefore, this will lead to a clear wide quality and performance of DDR4 products. Moreover, with ongoing restrictions against Chinese companies and China, Chinese manufacturers are expected to face heightened uncertainties in developing advanced notes and technologies. By focusing on advanced note development and ensuring timely readiness for high-performance products and developing various A.I. memory products, including HBM, we will continue to maintain a strong lead over competitors and various aspects, including product portfolio, performance, quality, and customer services. Thank you. We will take last question.

The last question will be presented by Simon Wu from Bank of America. Please go ahead with your question.

My question is about the increase in the production rate of D&M products beyond HBM.

Thank you for giving me this chance. My question is about your prediction for the production growth rate for D&M excluding HBM because there is an ongoing capex investment centering around HBM. I want to know about your plan for general conventional D&M. Starting in the second half of last year, we have seen a significant increase in the production rate of D&M products. We have scaled down the legacy D&M production due to worsening supply and demand conditions. But at the same time, we are expanding the adoption of 1A nanometer processors to increase supply for DDR5 and LPDDR5, which show strong demand. And therefore, the wave of production for conventional D&M is expected to grow slightly this year. Considering the production increase due to migration to advanced process and wafer production increase for conventional D&M products, we expect that general D&M production this year is expected to grow at a rate aligned with market demand. This year, with solid and strong HBM demand in the AI market, we will maximize HBM production and for conventional D&M products, we will have a product mix prioritizing profitability within limited capacity. By pursuing transitioning to advanced nodes, we will ensure timely supply for customers and maintain healthy and sound inventory levels for legacy products. This concludes the earnings call conference call. Thank you for your attendance.