Sk Hynix Inc S/Gdr 144A

Good morning, afternoon, and evening. Thank you for joining SK Hynix 2025 Q2 Earnings Release Conference Call. Following SK Hynix presentation, there will be a Q&A session. If you have a question, please press star and 1 on your phone. Please note that presentations will be interpreted simultaneously and Q&A session consecutively. With that, we are now ready to begin.

Good morning, afternoon, and evening.

This is Park Sung Hwan, Head of IR at SK Hynix. Welcome to the SK Hynix 2025 Second Quarter Earnings Release Conference Call. Allow me to introduce the executives present here with me today. We're joined by President of Corporate Center, Song Hyun Jong, Chief Financial Officer, Kim Woo Hyun, Head of DRAM Marketing, Kim Kyu Hyun, Head of NAND Marketing, Kim Seok, and head of HBM Sales and Marketing, Kim Gi Tae. Let me issue a disclaimer that all outlooks presented by the company are subject to change depending on the macroeconomic and market circumstances. With that, we will now begin SK Hynix earnings release conference call for second quarter of 2025. Song Hyun Jong, president of corporate center, 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.

This is Song Hyunjong, Head of Corporate Center. Allow me to first introduce the company's performance for the second quarter of 2025. The past quarter began with concerns about a slowdown in demand. due to trade tensions and overall economic uncertainty. However, demand for AI memory continued to grow, driven by aggressive AI investments from big tech companies. This was further supported by customers' preemptive purchasing to prepare for external risks, resulting in a more favorable environment than initially expected. Both DRAM and NAND shipments exceeded our original guidance and pricing conditions also improved. As a result, second quarter revenue increased by 26% QOQ and 35% YOY, reaching an all-time high of $22.2 trillion. For DRAM, sales of our 12 high-HBM3E product was expanded in full scale as planned, while server and PC segments saw strong demand, driving sequential Q2 shipment growth above guidance at mid-20% growth. Meanwhile, ASB rose by low single-digit percent due to a considerable increase in sales of relatively lower-priced conventional DRAM products. Coming from a low base of the previous quarter, land shipments significantly exceeded guidance by increasing over 70% sequentially as demand rose across all applications. ASB declined by high single-digit percent QOQ due to continued pricing weakness in solution products despite price rise in the spot market. Operating profit rose by 24% QOQ and 68% YOY, reaching 9.2 trillion won, also setting a new quarterly record. The operating profit margin stood at 41%. Depreciation and amortization expenses for Q2 were 3.4 trillion won, marking a slight increase from the previous quarter. EBITDA came in at 12.6 trillion won, with an EBITDA margin of 57%. Non-operating loss net of gain reached 0.49 trillion won. Notable items include foreign currency related net loss of 0.61 trillion won due to depreciation of U.S. dollar against Korean won and 0.12 trillion won of other non-operating income including valuation gains on investment assets. Pre-tax income was 8.7 trillion won while net income was 7 trillion won resulting in a net profit margin of 31%. As of the end of the second quarter, cash and cash equivalents stood at 17 trillion won, up 2.7 trillion won from the previous quarter. Interest-bearing debt decreased 1.5 trillion won to 21.8 trillion won, resulting in a reduction of net debt by 4.1 trillion won to 4.9 trillion won. Accordingly, our debt-to-equity and net debt-to-equity ratios reached 25% and 6% respectively. which is an improvement by 4 percentage points and 5 percentage points respectively. Now let me share our market outlook. While the memory market was initially expected to recover towards the second half of the year, we saw strong demand growth and favorable pricing conditions in the first half. Despite increased procurement demand during Q2, system build demand also rose, helping customers to maintain inventories at stable levels. Given demand is expected to grow from new product launches in the second half, we believe the likelihood of sharp demand corrections due to customers' inventory adjustments would be low. Looking at demand by application, we expect healthy demand growth in the server market driven by increase in investment from big tech companies despite macro uncertainty. Alongside strong AI demand, general-purpose server demand is also projected to rise due to replacement cycles and adoption of new CPUs. In the AI market, big tech companies have begun full-fledged competition by unveiling AI agents with enhanced reasoning models. These models perform iterative thought processes to solve problems autonomously requiring systems capable of processing significantly more data than conventional AI models. This evolution is expected to further drive demand for high-performance, high-density memory. Additionally, ongoing investments by governments and corporations for sovereign AI are likely to become a new long-term driver of AI memory demand. In the PC and smartphone market, the proliferation of AI applications is expected to drive replacement demand this year. Memory contents per device are also expected to grow with wider adoption of high-performance memory required to support the AI functions. A live DRAM market, NAND market, has yet to see meaningful AI-driven demand growth. However, as power consumption considerations are becoming increasingly important in AI servers, we expect adoption of power-efficient SSD solutions to widen in the near future. Next, I will discuss the company's plans. In the third quarter, given the significant shipment growth in the second quarter, we expect a moderation in shipment growth with DRAM growing by approximately low to mid single digit percent and NAND shipment increase being rather limited. Our plan to double HBM sales YOY remains unchanged backed by our strong product competitiveness and mass production capability. We expect to continue delivering stable performance leveraging the HBM business despite external uncertainties. Our HBM3e products are receiving high marks from all customers for their performance and supply reliability, and we plan to maintain industry-leading competitiveness as we transition into HBM4. In March, we supplied industry's first samples of HBM4 to customers. We are currently working closely with partners to optimize system-level performance, and they're preparing to deliver products on time for our customers' needs. Beyond HBM, we plan to expand sales of conventional DRAM products where DRAM is increasing. These include high-speed DDR5 products over 8,000 megabits per second that support new CPUs, high-density server modules over 128 gigabytes, and LPDDR5X for flagship smartphones, as well as LPDDR4X products favored in the Chinese market. We also plan to begin supplying LPDDR-based server modules that enhance data processing speed and power efficiency within this year. Additionally, for GPUs, we are preparing not only the 16 gigabit GDDR7 products currently in supply, but also 24 gigabit-based products to strengthen our leadership in the AI memory market with a diversified product portfolio. For NAND, we will maintain a prudent investment strategy and a profitability focused approach in line with downstream demand conditions. However, we are continuing product development efforts to respond quickly once market conditions improved. In the second quarter, we began actively expanding sales of ultra high density enterprise SSDs exceeding 120 terabytes based in QLC technology. In May, we developed a 321-layer NAND-based UFS 4.1 product with random read and write speeds improved by 15% and 40%, respectively, compared to the previous generation. By the end of the year, we also plan to develop both client and enterprise SSDs based on 321-layer technology, thereby building a competitive NAND product portfolio. Looking ahead, our N15 FAB M15x Fab is scheduled to open in Q4 of this year to produce DRAM products including HBM from 2026. Construction of our Yongin Fab Phase 1 is on track for completion in Q2 2027 and through these facilities we aim to secure the manufacturing infrastructure necessary to meet future demand. Our total investment for this year is expected to increase compared to the previous plans in accordance with our principles of continuing our investment focus for products with high demand visibility and secure profitability, as well as maximizing investment efficiency. Although we are yet unable to provide details regarding HBM supply for 2026, as we now have secured visibility on next year's demand figure based on discussions with customers, we assessed that some proactive investment this year is necessary to ensure timely support of our HBM products. In the AI market, memory is increasingly becoming a critical infrastructure as it plays an essential role in defining overall AI system performance. As a leading AI memory provider, we aim to drive both customer satisfaction and market growth by launching innovative products with top-tier quality and performance that meet the needs of the AI system. With that, we are now ready to take your questions.

Now, Q&A session will begin.

Please press star 1, that is star and 1, 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 and 2 on your phone. The first question will be provided by Donghee Han from SK Securities. Please go ahead with your question.

Hello, I'm Donghee Han from SK Securities. Thank you for the good results. I would like to ask you about HBM. HBM is also expecting high growth with strong demand for AI. What is the main momentum of HBM demand in the medium-term HBM demand after 2025? Thank you.

Yes, good morning. I am Handong Lee from SK Securities. Congratulations on your great performance. My question is about forecast for HBM market. Driven by strong demand for AI, HBM is expected for continuous and rapid growth. How do you forecast to meet the long-term demand for HBM beyond 2025, and what will be important momentum to drive HBM demand?

Thank you for the question. The AI market is growing at a very fast pace, as we can see from the continued expansion of CapTex by big tech companies, the increasing token processing volume, and the high growth rate of AI startups.

As you can see from continuous CapEx expansion by big tech companies, increases in token throughput, and high growth rate of AI startups, the AI market is growing at a rapid pace.

Especially, AI SEO is expanded from training to inferencing, and AI workload is rapidly increasing as inferencing is subdivided into reasoning models and agents.

In particular, AI demand is expanding from training to inferencing, and inferencing has further divided and advanced into areas like reasoning and agents, which has led to a sharp increase in AI workloads and intensifying bandwidth bottlenecks. In this rapidly growing AI market, HBM is now positioned as a key product that critically affects performance enhancement. Taking its importance into consideration, we believe there is no doubt about growth potential of HBM demand. As the AI market continues to expand into areas like AI agents and physical AI, computational volume will grow explosively, which will in turn drive demand growth in the HBM market.

In the future, the HBM market may not sustain the only state explosive growth rate, but AI technology will rapidly advance and spread,

expanding the customer base and driving the continuous launch of new products and services. Therefore, we expect HBM will continue to enjoy strong growth.

Next question.

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

Hello, thank you for the question. First of all, congratulations on your good performance. I also have a question for HBM. It's a situation where the market's interest is more concentrated next year. I would appreciate it if you could let us know how the HBM supply negotiation with the major customers is going on in 2026.

So thank you for giving me this opportunity to ask questions, and congratulations on your great performance. My question is also about HBM, because market attention is really centered around this product. So my question is about the next year forecast. So how are negotiations progressing for the 2026 HBM supply with major customers?

Thank you for the question. It is difficult to talk about customer-related issues in detail, Thank you for the question.

We cannot provide customer details, but negotiations are proceeding as planned. As customer projects become increasingly diverse, we are engaged in close negotiations for product mix and pricing.

As a close partner of our major customers in the AI semiconductor field,

we are conducting negotiations and offering optimal supply conditions for a long-term partnership. Furthermore, by delivering the highest quality products that customers require in a reliable and timely manner, we plan to prepare for supply expansion to meet customer demands and grow together with our customers.

Next question.

The following question will be presented by Youngho Ryu from NH Investment and Securities.

Please go ahead with your question. I am Lee Young-ho from NH Security.

My question is about demand and to what extent the uncertainties affect pulling demand in Q2. And how do you assess the resulting increase in customer inventory and its impact on demand for second half?

Our Q2 shipment volume significantly exceeded the initial guidance, and this was indeed driven by purchasing demand,

which was stronger than expected.

In the first half of this year, customers tried to take stock at a conservative level, but as the uncertainty about the policy of tariffs increased, they changed their direction with a strategy to secure the right stock level. Therefore, the demand for purchase increased greatly from major customers with low stock.

Initially, customers intended to conservatively maintain inventory levels during the first half of the year, but with growing uncertainty around tariff policies, they shifted strategies towards securing appropriate level of inventory. This led to a great increase in purchasing demand, especially from major customers with previously low stock levels.

As the EOL plan was announced about some legacy products,

In addition, with end-of-life plans released for certain legacy products, competition for securing supply intensified among small to mid-sized customers, including module makers, and therefore further tightening market supply conditions. Although shipment volumes in the first half exceeded our original plans, which raises concerns over potential demand slowdown in the second half, we believe the likelihood of sharp fluctuation in supply and demand remains low.

System build activity also increased in Q2, so customer inventory levels did not rise to a significant level.

Moreover, memory suppliers have already reduced their inventories greatly, which means going forward, supply growth will be only driven by production growth.

According to the future tax policy, purchase demand may be affected, but the party will continue to focus on stable business operations based on products with guaranteed demand.

Depending on how future tariff policies evolve in the future, purchasing demand can be affected. In response, we will do our best to ensure stable business operation, especially focusing on products with secured demand feasibility.

Thank you for your answer. Next question, please.

The following question will be presented by Hyun-kyun Ryu from Daishin Securities. Please go ahead with your question.

Hello, I'm Hyun-kyun Ryu from Daishin Securities. First of all, congratulations on your good performance. I would like to ask a question about the influence of public semiconductor export control in the U.S. Recently, the U.S. has been strengthened by the import of Chinese semiconductors, and there is a concern that the use of Chinese factories may be reduced. I would like to ask you about how you will operate the Chinese web in the future.

Thank you. Once again, congratulations for your great performance. With the U.S. government tightening export controls on China, SK Hynix may face growing restrictions on its web operations in China. So what are your plans for managing your operations in China going forward?

Thank you for your question. Everyone is concerned about the current situation, but there is no change in the position of VEU, which Hynix secured in October of 2003. Therefore, considering the needs of customers at the forefront, and making sure that there is no problem with customers in the regulatory framework, Thank you very much for the question.

As we all worry about geopolitical situations today, however, there has been no change to our validated end-user or VEU status that we obtained in October 2023. We are committed to putting our customers' needs first and will work hard to provide uninterrupted supply within the boundaries of regulation, and we'll continue operating our China FAPs according to our existing plan.

In fact, if you look at the recent situation, especially if you look at the supply situation of legacy DRAMs, there is also a side that works advantageously in managing Chinese BAMs. For example, right now, in the entire industry, the expansion and expansion of EHBAMs is working under restrictions on the general DRAM KEPA, and in terms of products, In fact, recent supply conditions for legacy DRAM can be beneficial for our China FAB operations.

For example, with increasing DRAM capacity being allocated to expanding HBM production, supply shortages of DDR4 and L4 DDR4 legacy products have emerged during the transition to DDR5 and LPDDR5?

In the last quarter, we responded using the stock that we have in the short-term legacy product supply. As a result of scanning the IT ecosystem, we have determined that the supply of a certain part of the legacy DRAM will continue for a considerable period of time,

So in Q2, we responded to this demand growth for the legacy products with our existing inventory. But we believe that the demand for legacy DRAM will continue to persist for a while. And therefore, we'll also focus on providing legacy products for the long-term customer support. and we are going to utilize our China FABs to ensure a stable supply for the legacy product.

China FAB is not only the location of SK Hynix's FAB, but also a very important production facility in the global memory semiconductor industry, so we will continue to closely monitor the U.S. regulatory situation and communicate closely with the government of each country.

Our China fabs are not only critical to our operations, but also play a key role in the global memory semiconductor supply chain. As such, we will continue to closely monitor U.S. regulatory developments and maintain close communication with governments around the world.

Thank you for your answer.

Next question, please. The next questioner is Jay Kwon from JP Morgan.

The following question will be presented by Jae Kwon from JP Morgan.

Please go ahead with your question.

Thank you for this chance to ask question. My question is about NAND product. It seems your NAND shipment growth in this quarter significantly outperformed prior guidance. Can you please elaborate on which customer segment drove this growth?

Yes, thank you for the question. Last quarter, the company announced the second quarter NAND drop guidance In the previous earnings call, we guided for over 20% land shipment growth in Q2.

At the time, we observed the signs of rising spot prices and declining customer inventories. But demand visibility for certain products remain fairly limited.

In the second quarter, the demand for enterprise SSDs increased as hyper-scaled customers expanded their investment in AI. Secondly, the demand for pre-installed products increased due to tariffs,

However, in Q2, demand for enterprise SSDs increased as hyperscale customers expanded their AI investments, while pulling demand for individual components also rose due to tariff-related uncertainty. Additionally, mobile sets' build demand in the China region grew due to promotional events leading to shipments that significantly exceeded our expectations.

With the increase in sales in the second quarter, the stock price has now dropped to the normal level. We will continue to properly operate production and stock according to market demand.

With the Q2 sales increased, our inventory levels have now normalized. Moving forward, we'll continue to manage production and inventory flexibly in accordance with market demand.

Next question.

The following question will be presented by Sinwoo Kim from Merit Securities. Please go ahead with your question.

Yes, hello. I am Kim San-woo from Merit Securities. I would like to ask a question about the HBM-4 stock price. As the HBM-4 price increases, there seems to be some concern about HBM's profitability as the stock price increases compared to the existing product. What do you think about this? Thank you.

Thank you for the opportunity. I would like to ask about HBM4. As HBM4 entails a greater cost increase compared to previous HBM products, there are some concerns about potential profitability decline. What is SK Hynix perspective on this?

Thank you for the question.

As you may know, HP M4 exhibits major technological changes, including increased IO count for higher bandwidth, new design for improved power efficiency, and the adoption of logic processes in the base die. Accordingly, we are striving to reflect this cost increase in our pricing strategy for HBM4, and we aim to stimulate the AI market by establishing optimal pricing with customers while maintaining current profitability levels.

Next question.

The following question will be presented by Jongwook Lee from Samsung Securities.

Please go ahead with your question. Again, thank you for the chance.

My question is about DRAM. So DDR4 supply appears to be quite tight recently. What is your outlook on future DDR4 demand? And what is DDR4's current revenue share at SK Hynix? And what are your plans regarding its end-of-life timing and future operation?

Thank you for the question. The recent rise in the price of DDR4 is because some suppliers have decided to terminate DDR4, and supply shortage concerns have been significantly emphasized in the short term. However, since it is a time when the generation changes from DDR4 to DDR5, it is not a meaningful change in the demand for DDR4 itself,

The recent spike in DDR4 prices has been primarily driven by short-term supply concerns following announcements from some suppliers to discontinue DDR4 production. However, as we are currently in a transition phase from DDR4 to DDR5, we view this as a temporary demand concentration. rather than a structural shift in underlying demand for DDR4?

In terms of the DDR4 sales ratio, it has been decreasing since 2023 due to the increase in demand for DDR5 and HBM. Last year, it was two-digit, but this year, it is one-digit.

Speaking of the DDR4 share in SK Hynix revenue, since 2023, DDR4 has seen a steady decline in our revenue share, triggered by growing demand for DDR5 and HBM. In fact, its contribution has dropped from a double-digit percentage last year to a single-digit level this year.

For the future mass market, the DDR4 is a joint project, Going forward, we plan to phase out DDR4 for the mass market.

However, for selected customers who require long-term support, we'll continue our supply based on mutually agreed volume.

Next question.

The next question is from Lee from Citigroup.

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

Hello, I'm Lee from Citigroup. I have a question about CapEx investment that you mentioned earlier. You said that the investment this year will increase the existing planning budget. My question is about CAPEX investment.

You mentioned that this year's investment will exceed initial plan. So to what extent will it increase? And will most of the additional investment be allocated to equipment or infrastructure?

The company is promoting investment and financial sustainability for future growth at the same time. In addition, we are conducting infrastructure investment to smoothly supply supply to customers and customers this year, focusing on investment. In addition, we are conducting infrastructure investment to secure long-term growth-based investment such as M15X, Yongin PEP, and construction investment.

We are pursuing investment for future growth in tandem with efforts to maintain financial soundness. This year, our investment focus is on ensuring seamless support for the supply volumes agreed upon with customers. At the same time, infrastructure investments such as M15X and the new FAB in Yongin are underway to lay the foundation for long-term growth.

As I said, we have determined that it is necessary to invest in advance to respond to the low cost because the visibility of the next year's HBM supply is secured. In addition, the investment amount of the party this year will increase according to the existing plan, and the number of equipment investors for most HBM production will increase.

As mentioned earlier, we now have visibility into next year's HBM supply, which calls for proactive investment to ensure timely response. Accordingly, our total investment for this year will increase from the original plan, with the majority of the additional spending allocated to HBM-related equipment. The final investment scale, however, will be confirmed once negotiations with major customers are concluded.

We will continue to comply with CAPEX discipline while improving investment efficiency going forward.

Next question.

The next question is from Ricky Seo of HSBC.

The following question will be presented by Ricky Seo from HSBC. Please go ahead with your question.

As for the related question, the M16 Kepa is not available in the media these days, so it seems that Kepa expansion will be limited. So,

A recent article suggests that M16 is already operating at full capacity with no additional capacity for production expansion. In that case, to what extent do you expect the new M15 FAP to be utilized by the end of next year given the current investment level? And my second question is that as for the 1C nano DRAM ramp up, When will we be able to see the significant level of the expansion, at least by 15% to 20%?

First, I would like to talk about the question related to the new FAP and SPACE. As you know, the HBM market has grown and demand has increased in this direction, so we have converted a lot of Hynix's KEPA to HBM in the general DLM. So let me first answer the first part of your question regarding the new FAB.

As the HVM market expands and demand increase, we have reallocated a significant portion of our capacity from general DRAM to HVM. In this process, due to HBM's nature of requiring more capacity compared to general DRAM, the clean room space needed to produce the same output volume has increased substantially.

Currently, Hynix's existing FAPs are used for optimization of product mix, tech conversion, and securing TSB line. In order to secure long-term production infrastructure, we are currently using 15x and Yongin,

So our existing fabs are currently being utilized for product mix optimization, technology migration, and TSV line operations. At the same time, to secure mid-to-long-term production infrastructure, we are simultaneously developing the M15x union fab and advanced packaging fab in Indiana, the U.S.

The M15X, which you mentioned earlier, is scheduled to open FAB in the fourth quarter of this year, and it will be ready to be mass-produced next year. M15X is planning to mass-produce based on the next-generation HBM products to meet customer demand. We are planning to increase the cap by increasing the value of the quantity required by all customers next year.

Among these, the M15X is scheduled to open in Q4 of this year and will begin full-scale mass production next year. It will primarily focus on next-generation HBM products to meet rising customer demand. We plan to gradually ramp up capacity in line with the visibility that we gain on customer volume requirements throughout the next year.

It is difficult to say how many percent of M15X will be used in M15X by the end of next year, but if you guess the purpose of the question, we can say that there is no reason why we cannot supply L-shaped products to customers due to the restriction of FAB space.

And also for your question that how much space can actually be utilized or space increase can be realized through the M15X at the end of next year. I understand your intention for the question, but I believe there will be no occasions where we will not be able to supply products because of the fab space restrictions.

Next, I would like to briefly talk about MCNano. MCNano's transition started in the second half of this year,

And also for the conversion into the MCA Nano, I believe this conversion will begin from the second half of this year, but the full-scale conversion will take place only in next year. Right now, we are in the process of establishing management plan for this, so we will share the details later.

Next question.

The following question will be presented by Loho Kim from Hana Securities.

Please go ahead with your question. In the past, the productivity has declined, and supply chains have also maintained their original production standards. Nevertheless, it seems that profitability improvement is a bit limited. Please explain how long you expect this situation to last. Thank you.

The long-term growth potential of the land market has slowed down compared to the past. Despite suppliers maintaining a conservative production stance, Profitability has not shown significant improvement. How long do you expect this market condition to persist?

Yes, I will answer your question. Currently, the growth of the NAND market is due to the fact that the consumer-assessed demand and the investment of customers who are switching to the AI server are not yet connected to the purchase of storage devices.

So the slowdown in the net market today is mainly due to stagnant demand for consumer-set devices, as well as the fact that consumers transitioning to AI servers have yet to extend their investment into storage devices.

However, we believe that the need for storage equipment investment will begin to surface

in the not-too-distant future?

As the HBM in charge of the QA section said, the increase in the use of AI and its token production will grow to the level of surpassing imagination in the near future, and it will be difficult to handle this increased demand in the existing data processing method.

As HBM Director mentioned at the beginning of Q&A session, this is because AI uses and the resulting volume of token generation is expected to grow at an astronomical pace far beyond what we can imagine today. And traditional data processing methods will not be able to handle this exclusive surge in demand.

So, the role of AI Tron data caching is defined as ESSD, That's why there is a growing attempt to offload AI inference data caching to ESSD, and as such, we expect initial demand to materialize within the next two to three years. 연산용 캐시의 일부가 되면서 AI 시스템 안에서 차지하는 포지션에 큰 변화가 생길 것으로 예상하고 있습니다.

If this trend becomes a reality, ESSD will no longer remain as a mere storage device, but rather it will evolve into part of the compute cache and their roles and positions within the AI system will be changed.

당사는 이 시점에 랜드 시장에서 큰 폭의 수요 성장이 시작될 것으로 보고 있습니다.

And we expect this will mark the beginning of significant demand growth in the NAND market.

Next question.

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

Yes, I'm Simon Wu from Bank of America. My question is about technologies for the next generation DRAM production.

When will they be introduced and what will be the timing for mass production? and how they can contribute to improving efficiency for ATBM DRM production. So while memory suppliers have thus far pursued the transition to finer process nodes, their efforts are now approaching the limits in terms of performance and capacity enhancement. In response, we are exploring the application of vertical gate platforms and 3D DRAM technologies based on breakthrough changes in architecture, materials, and components as sub-10 nanometer nodes. Vertical Gate Platform is a next-generation memory technology that minimizes DRAM cell area and vertically structure the gate that function as a transistor switch, thereby dramatically enhancing area efficiency and power characteristics compared to existing architecture.

3D DRAM is another next-generation memory technology that enables high density by vertically stacking DRAM cells without miniaturization.

And in order for these technological innovations to overcome current limitations and become the new industry standard, we are focusing on securing technological stability.

However, these innovative technology attempts require a lot of time to secure technical stability and productivity, so we plan to continue to maintain technical leadership by actively working with existing micro-systems such as 1D nano development.

However, as it will take time for such innovative approaches to become technologically stable and ready for mass production, we will continue to advance conventional miniaturization efforts such as 1DNM development to maintain our technological leadership.

As you know, one of the basis of Hynix HBM's competitiveness was the competitiveness of DLM-based technology. As you know, our competitive edge in HBM comes from our strong foundational technology for DRAM.

And therefore, if we could, as we step by step, develop the next generation memory technology, I believe This will also be the source of our future HBM production.

Next question.

The following question will be presented by Youngmin Ko from Dale Investment and Securities.

Please go ahead with your question. I would like to ask a question related to China in terms of demand. Among the recent trends, there is a part of our main customer that supplies to China. If you think about it, it will probably be a form of supply of products that were supplied in the past and products that will be produced in the next generation in the future. Considering our product competitiveness, I think we can look forward to our supply chain in any form.

There have been reports that a major GPU customer has resumed shipment of AI chips with performance such as for the export to China. And I believe that this could also be beneficial for the future supply expansion and so on. Could this lead to an upside in HBM demand?

It was only recently reported that a major GPU customer had resumed shipment of AI products bound for export to China.

We are currently in the process of assessing concrete information regarding how HBM demand will shift in relation to this product.

However, the company believes that it will be relatively easy to respond quickly if the customer demand and internal supply conditions are well-matched as the main vendor provided the HBM applied to the product before export.

However, as we were a primary HBM supplier for this product prior to the export control, we believe that if customer demand and our internal supply conditions are aligned, we are well-positioned to respond swiftly and capitalize on this opportunity.

Also, based on the basis of close cooperation with the customer, the company is able to provide

And leveraging the close partnership that we have built with our customers, we will do our best to generate win-win outcome for both our customers and the company.

This will be the final question.

The last question will be presented by Minsuk Chai from Korea Investment and Securities. Please go ahead with your question.

Hello, I'm Minsuk Chai from Korea Investment and Securities. Congratulations on your good performance. Lastly, I'd like to ask you a question about HBM. SK Hynix is currently a leading HBM company based on product technology and productivity. However, there are still concerns about HBM's competitiveness. There seems to be uncertainty in the business environment in the AI semiconductor ecosystem. I would appreciate it if you could tell us what the company's strategy is as an HBM leader in this environment.

Congratulations on your great performance. My question is back to HBM. SK Hynix has emerged as a leading HBM supplier backed by strong product technology and manufacturing capabilities. However, concerns continue to mount over intensifying competition, and uncertainty due to changes in business environment with the AI semiconductor ecosystem. So as an ATBM leading supplier, what is your strategy moving forward to navigate these challenges?

I think it is natural to have concerns that the number of effective suppliers may increase, Right, so it is very natural to worry about intensifying competition, especially given the situation that the number of suppliers are growing.

But I believe that as long as we are in the memory business, competition is something that we have to take. And I believe this is our mission to deliver great performance despite the fierce competition, as well as provide great values to our customers and investors.

HBM is an important product, and the memory market changed from the pure commodity market in the past. Now, it is judged that leading entrepreneurs have changed to a market where they can have constant compatibility. HBM is an AI-oriented computing chip that directly adopts this chip. Broadly, it has a lot to do with the performance and cost base of the AI computing system, and this has grown dramatically compared to the past general memory products. As a result, the demand for HBM has become very sticky.

So with the emergence of the ATBM product, I believe memory market has also shifted from the pure computing storage. And we believe that this can also affect. And as a result, the leading suppliers now have greater leveraging powers. HBM influences over computing chips for AI, where HBM is directly employed, as well as broader AI computing system performance and cost basis, far greater than conventional general memory products. As a result, the demand for HBM has become very sticky, and leading players now have greater advantage in having all the engagement with customers.

In the past, in the HBM market, Hynix, which had a very weak presence, Today, the corporate culture of Hynix stands out as the leader. In terms of product development and production supply, the customer-oriented mindset that takes all the power to solve the pain points of the customer, and the teamwork of a solid organization that backs it up. These soft economic elements cannot be easily copied by others. In the future, it is very important that SK Hynix remains in the top of the mind of HBM customers based on this cultural background,

SK Hynix, despite its previous minimal presence in the HBM market, we have been able to grow as a leading player today, and I believe this comes from our corporate culture. We put customer before anything else to address customer pain points in product design, production, and supply. We are also backed up by strong teamwork. Such competitive ads in corporate culture cannot easily be emulated or mimicked by others. Going forward, based on such solid corporate culture, we'll make sure SK Hynix will continue to stay top of mind of HBM customers, and we believe this is the way to secure and solidify our leadership in the future in the AI memory market.

There are various constraints that AI computing infrastructure has Due to various restrictions in AI computing infrastructure today, we are required to develop further granular HBM products

as well as design new memory products. Through all the engagement with customers, SK Hynix will continue to provide customized HBM products catering to the needs of customers in AI ecosystem and solidify our strong leadership in new memory products for AI, including PIM. This will conclude the conference call for the SK Hynix for the second quarter of 2025. Thank you very much.