Sk Hynix Inc S/Gdr 144A

Good morning. Thank you for your participation in SK Hynix Earnings Release Conference Call. Today, we will begin with SK Hynix's presentation and move on to a Q&A session. If you have any questions, please press star 1 that is star and 1 on your phone. Note that presentations will be interpreted simultaneously and the Q&A session will be consecutively interpreted. With that, we will now begin SK Hynix Earnings Release Conference Call for Second Quarter of 2026. Good morning, afternoon, and evening. This is Park Sung-Hwan, Head of IR at SK Hynix. Welcome to the SK Hynix 2026 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, Son Hyeon-jong, CFO, Kim Woo-hyun, Head of D-RAM Marketing, Park Jun-deok, Head of NAND Marketing, Song Chang-seok, and Head of HBM Sales and Marketing, Kim Ki-tae. Let me issue a disclaimer that our second quarter results included in this conference call are consolidated figures and provisional in nature as the external auditor's review has not yet been completed. Accordingly, they remain subject to change In addition, forward-looking statements including market outlook and the company's plans may vary depending on changes in macroeconomic and market circumstances. With that, we will now begin SK Hynix earnings release conference call for second quarter of 2026. President Song Hyun-jong 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 Hyun Jong, President of Corporate Center. Allow me to first introduce the SK Hynix's performance for the second quarter of 2026. In the second quarter, strong demand driven by the expansion of AI infrastructure investment and a tight supply environment continued, leading to a sustained upward trend in prices. Both DRAM and NAND recorded meaningful price increases following the previous quarter, with AI-related products such as Server DRAM and Enterprise SSDs driving this growth. As a result, second quarter revenue increased by 51% quarter-on-quarter and 257% year-on-year, reaching 79.3 trillion won, marking a record high revenue following the previous quarter. In DRAM, amidst limited supply capabilities, we expanded sales centered on HBM3e and AI server DRAM products, achieving high single-digit percent increase in bid shipments in line with our guidance. In particular, sales of LPDDR products for servers, including SOCAM2, grew significantly. ASP rose by approximately 30% driven by the continued price strength in conventional DRAM. In LEND, from a low base of reduced shipments in the first quarter and with the expansion of Enterprise SSD sales, we recorded a mid-10% increase in bid shipments in line with our guidance. Our Enterprise SSD revenue increased two-fold from that of the previous quarter and Solid Dynes revenue from high-capacity Enterprise SSDs of 30TB and above also expanded more than three-fold from that of last quarter ASP increased by mid-50% due to strong pricing across all products. With price increases across both DRAM and NAND segments and improvement in cost structure, second quarter operating income reached 60.5 trillion won of 61% quarter-on-quarter and 557% year-on-year. Operating margin also improved by 5 percentage points from that of the previous quarter to record 76%. achieving all-time highs for both operating income and operating margin. Second quarter depreciation and amortization amounted to 4 trillion won. EBITDA stood at 64.6 trillion won with an EBITDA margin of 81%. Net non-operating profit reached 62.2 trillion won including foreign exchange-related net gain of 1.1 trillion won due to the rising exchange rate and gains from the sale and valuation of investment assets totaling Hynix Inc S & Gdr 144A Hynix Inc S & Gdr 144A decreased by 0.7 trillion won to 18.6 trillion won. Accordingly, net cash expanded to 69.4 trillion won and debt-to-equity ratio improved by 5 percentage points from the previous quarter end to 7%. Now let me share our market outlook. AI technology is evolving into an agentic form that performs complex tasks on behalf of users for extended periods. Furthermore, as AI spreads across various services such as search coding and productivity tools, the scope of demand is widening from a memory perspective. Alongside high-performance memory like HBM, which is necessary for improving AI server performance and expanding system scale, demand for server demand to support agent services is also increasing. Additionally, the role of high-performance enterprise SSDs is widening for more efficient processing of continuously generated AI outputs. Thus, we are witnessing a structural shift in demand where both AI memory and conventional memory are growing together. Meanwhile, as AI models improve and software optimization advances, the computational volume and cost per individual task are continuously decreasing. We anticipate that these improvements in efficiency will not dampen overall infrastructure demand. Rather, they will lower price and adoption barriers for AI services, thereby expanding the user base and scope of applications. Major big tech customers are expanding infrastructure investments due to increased AI service usage and shortage of computing capacity. Based on the growth in revenue and profits generated from AI services, they appear to be continuing to expand their memory procurement. In fact, our major customers are still requesting more memory supply. In PC and mobile applications, temporary sales adjustments are occurring due to difficulties in securing memory. However, we expect these segments to gradually regain growth momentum as supply shortage eases and AI services become more widely adopted. Amidst constrained supply conditions, DRAM and NAND demand are projected to grow by mid 20% and high 10% respectively. Furthermore, should supply constraints ease going forward, the market's growth trajectory could expand further as latent demand is met. On the supply side, however, it appears difficult for the supply-demand balance to improve meaningfully in the near term. This is due to the increasing complexity of advanced processes applied to HBM and AI server memory as well as lead times required for constructing new production facilities. With high supply-demand conditions expected to persist for a considerable period, discussions regarding multi-year contracts to secure mid- to long-term supply stability with customers are ongoing. To date, we have concluded LTA negotiations with around 10 customers, including our key customers, and are continuing further discussions with our major industry players. These LTAs represent strategic partnerships that go beyond simple volume supply. They are designed to secure mid- to long-term supply stability and facilitate the development of next-generation memory aligned with our customers' technology roadmap. While specific pricing structures vary depending on the customer and product Hynix Inc S & Gdr 144A For the third quarter, DRAM shipments are expected to increase by approximately 10% from that of Q2 as we actively respond to demand with focus on server products. For NAND, we plan bit shipment increase of low single digit percent quarter on quarter. As AI models become more sophisticated, the performance levels required for memory are rising even further, and the scope of competitiveness is expanding beyond the design of individual memory products to include system architecture and packaging technologies. Leveraging our competitive portfolio of DRAM and NAND, including HBM, and our co-development capabilities with customers, we will lead memory innovation from a system level. First, regarding HBM4, through continuous product optimization, we have demonstrated differentiated technological competitiveness by achieving the data processing speech required by customers while attaining industry-leading power efficiency and cost competitiveness. We began mass production shipments in Q2 and plan full-fledged ramp-up of production in the second half of the year. For HBM4E, we supply samples to a major customer in the first half of the year. HBM4E is produced with the optimal techno that is mature and has proven net production stability, and we expect the subsequent development schedule to proceed smoothly. Based on our comprehensive competitiveness, which includes stable supply capability and cost competitiveness backed by superior quality and high yields as well as industry-leading performance, we will continue to maintain our HBM leadership. Hynix Inc S & Gdr 144A Hynix Inc S & Gdr 144A Market Demand In the previous quarter, our 321-layer product accounted for the largest proportion of band production, and we plan to expand its share within our domestic capacity to the 50% level by the end of the year as planned. In a market situation where supply-demand imbalances persist, stable supply capability, the ability to deliver the volumes customers want in a timely manner, is emerging as a core business competitiveness alongside technological proficiency. Therefore, to respond to robust customer demand and mid- to long-term growth opportunities, we are continuing investment plans to expand our production capacity. In the short term, to enhance our supply responsiveness, we are pulling forward the massive production schedule for M15X and proceeding with investments to rapidly expand production capacity following the cleanroom opening of the Yongin Fab One in early 2027. Due to the scheduled acceleration and investment expansion, our 2026 CapEx is expected to reach the high 40 trillion won range. In the mid to long term, based on discussions with customers and market demand forecasts, we plan to proactively secure infrastructure for future supply capacity. Recently, we announced new investment plans for P&D7 to strengthen advanced packaging capabilities and M17 a new NAND production base. Furthermore, we have announced a mid- to long-term plan to create a new domestic semiconductor cluster to prepare for long-term demand beyond the union. Going forward, actual web construction, equipment installation, and production capacity expansion will be pursued in stages comprehensively considering customer demand visibility, investment efficiency, et cetera. We're planning to prepare for mid- to long-term growth opportunities without delay while maintaining cap Hynix Inc S & Gdr 144A Hynix Inc S & Gdr 144A while broadening our connection points with the next generation computing ecosystem. Building on this, we will strengthen strategic cooperation with major customers and partners and explore new business opportunities. Moreover, through relentless technological innovation, we will contribute to the development of the semiconductor industry and the growth of the AI system. Finally, I will address our goals for financial soundness and shareholder returns. Driven by profits and cash generation capabilities expanded to record levels, our financial capacity has been further strengthened Meanwhile, as structural growth opportunities in the AI era expand, the scale of investment required to realize these opportunities is also increasing significantly compared to the past. In this environment, we prioritize investments in growth opportunities that can generate high profitability and strategic value. At the same time, we aim to secure a financial structure capable of ensuring stable business operations, even amidst market fluctuations, and through this, we intend to continuously share the resulting outcomes with our shareholders. While investment requirements are expected to increase going forward, we believe that our significantly strengthened cash generation capabilities will allow us to meaningfully expand shareholder returns, all while achieving our investment goals for future growth and maintaining our financial soundness targets. We're currently reviewing various additional execution measures for shareholder returns from multiple angles.

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