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.

We're exploring... 지금부터 질의응답을 시작하겠습니다. 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 J.Kwon from J.P. Morgan. Please go ahead with your question.

네 안녕하세요. J.P. Morgan 증권 권재현입니다. 진행 기회 주셔서 감사합니다. 최근 일부 빅테크 회사들이 데이터 센터 임대 사업도 검토하고 있고 고효율 AI 모델도 등장하고 있고 AI 인프라 투자들이나 또는 축소에 대한 우려들이 있는데요.

Good morning and thank you for taking my questions.

Now recently we see that some big tech companies are considering leasing data centers and more efficient AI models emerging. And as a result, there are some concerns that AI infrastructure investment could slow or even decline. Then based on the company's talks with customers, how do you see some of the major DSPs AI infrastructure investment evolving? And also based on such outlook, could you also explain the implications for demand for HBM, DRAM, and NAND?

Thank you for the question. We are well aware of the concerns that investment in AI infrastructure may slow down

following news reports of some big tech companies exploring data center leasing and introduction of more efficient AI models.

And we view these developments not as a sign of AI investment slowdown, but more as a transition toward

higher utilization of the AI infrastructure that has already been built at scale and as well as accelerated monetization efforts.

Given that for major CSPs

AI competitiveness is closely tied to their core competitiveness, including search, advertising, cloud services, and software. We believe investments aimed at strengthening AI capabilities are likely to remain solid.

High-efficiency AI models will not necessarily lead to a decrease in infrastructure demand. If the efficiency of models and systems improves, more users in the same infrastructure

Likewise, we do not see these more efficient AI models reducing infrastructure demand. Rather, we believe that they will further broaden the AI base, like accessibility and adoption, because as models and systems become more efficient, the same infrastructure can support more users and services. It is evidenced by the explosive demand for the recent high-efficiency AI models, which suggests that the higher efficiency is driving broader AI adoption and usage, rather than reducing demand for infrastructure. This view is also supported by the medium to long-term demand outlook we have discussed with our key customers.

We expect the CSP's AI-related investment to continue over the medium to long term, and the kind of memory demand being discussed with our customers reflects this trend.

Of course, the timing of individual projects may differ due to physical constraints, such as power availability and data center construction, but we do believe AI infrastructure investment will remain solid beyond next year, supported by ongoing AI competition among CSPs and continued expansion of AI services.

Accordingly, HBM, which is in charge of AI production itself, as well as Server D-LAMP, which is for agentic AI,

We expect memory demand in general to keep expanding not only for HBM for AI compute but also for server DRAM to support agentic AI and high-performance, high-capacity NAND to accommodate the expansion of AI services as well as growth in data.

네 답변 감사합니다. 다음 질문해 주십시오.

Thank you very much and we will take the next question. 다음으로 질문해 주실 분은 하나증권의 김록호 님입니다.

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

안녕하세요. 하나증권 김록호입니다. 질문에 감사드리고요. Q. The company recently proposed a plan to greatly expand Kepa in the medium-term. I am curious about the basis of the memory demand for this. Please explain whether it includes long-term contracts or other secured demand. And since we have to propose a plan to greatly expand Kepa, I have a little thought about the concern about emergency overworking. Please share your company's answer on those parts. Thank you.

The company recently presented plans to significantly expand its capacity over the medium to long term. So what is the basis for your long-term memory demand outlook that supports this strategy? And also, does it include demand secured through the long-term agreement? And also, given the increase in the capacity, there are understandably some concerns in the market about potential oversupply. And what is the company's view regarding such concerns?

Thank you very much for the question. Now we plan for our medium to long term capacity strategy based on the structural growth in memory demand driven by AI expansion as well as our ongoing discussions with key customers

on their longer-term demand.

Recently, our collaboration with customers is evolving beyond transactional relations

into more strategic long-term partnerships. And the stronger intent by the customers to reach long-term agreements with suppliers as well as build partnerships also serves as the evidence of the sustained demand coming from the AI ecosystem.

Hynix Inc S & Gdr 144A Hynix Inc S & Gdr 144A Hynix Inc S & Gdr 144A Hynix Inc S & Gdr 144A

The capacity expansion that the SK Hynix is currently planning for is based on the visibility into market demand that has been secured in our partnerships with the customers. Of course, the actual capital investment and production ramp-up will be implemented in phases while considering demand visibility, investment efficiency as well as other factors.

Even that our capacity expansion will be executed flexibly,

in alignment with confirmed customer demand, we do not believe our medium to long term investment plans will lead to oversupply right away. Thank you and next question please.

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

Yes, hello. I am Kim Sun-woo of Merit Chisokwon. I would like to ask a question about the long-term supply contract, or LTA, which has recently become an issue. All memory peers have recently signed a LTA contract and have been explaining and announcing about it. As you have explained in the previous announcement, I am curious about the details of our Hynix LTA contract. I would like to ask about the details of our Hynix LTA contract.

My questions are on LTA. The company's memory peers have recently concluded and announced LTAs, and while it was briefly addressed in the company's briefing, could you also provide more details on SK Hynix's LTA framework, such as contract term and pricing structure?

The LTAs we are discussing with our customers are designed in various forms to be more specific to each customer and their products.

While the contract term normally is around 5 years, specific conditions may vary depending on the customer and product.

가격 구조 역시 단일한 방식보다는 가격 변동성에 대응할 수 있도록 다양한 방식을 고객과 협의하고 있습니다. 이를 통해 단기 시장 변동에 따른 불확실성을 줄이고 고객과 당사의 중장기 사업 안정성을 확보하는 데 초점을 두고 있습니다.

And our pricing structure will also not be uniform. We are discussing with customers to adopt a range of pricing mechanisms that can better respond to price volatility. The objective is to reduce uncertainty arising from short-term market volatility while enhancing long-term business stability for both our customers and SK Hynix.

On the other hand, considering the impact of demand variability on the memory cycle, At the same time it is equally important to secure effective purchase commitment

even the impact that demand volatility can have on the memory cycle. So in addition to long-term volume commitments, the agreements include mechanisms such as deposits that can strengthen contract implementation and demand visibility. The specific terms will differ depending on each customer's requirements and the contract structure.

Such structure will enable customers to define more reliable long-term procurement plans while allowing us to optimize our investment and production planning based on improved demand visibility. While we cannot say how much of our total sales will be covered by LTAs,

We intend to maintain it at an appropriate level based on market conditions and customer demand. This approach should enhance the downside resilience of our earnings while maintaining the flexibility to capture incremental demand and growth opportunities when market conditions become more favorable.

The company is already securing a stable profitability base centered on HBMs, We have already built a solid base of profitability centered on HBM, supported by long-term collaborations with major AI customers like NVIDIA.

Looking ahead, we will continue to strengthen our HBM leadership as we try to balance stability and profitability based on the demand visibility and operational flexibility secured through our LTAs.

Yes, please ask the next question.

Thank you and we will take the next question. The next person to ask the question is SK Tim Lin of Dial Capital Market.

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

Thank you for taking my questions and congratulations on the good performance. My questions are on DRAM. It appears as if DRAM ASP growth in the second quarter fell below market expectations. What are the reasons and what is the outlook for the second half of the year? We managed the sales mix between HBM and conventional DRAM based on customer demand and some medium to long-term product strategy. In the second quarter, shipments of some high-value ad products were pushed back into the second half, and changes in the product portfolio appeared to have affected our blended ASP. In the second quarter, shipments of some high-value ad products were pushed back into the second half, and changes in the product portfolio appeared to have affected our blended ASP. In the second quarter, shipments of some high-value ad products were pushed back into the second half, and changes in the product portfolio appeared to have affected our blended ASP. In the second quarter, shipments of some high-value ad products were pushed back into the second half, and changes in the product portfolio appeared to have affected our blended ASP.

In the second quarter, shipments of some high-value ad products were pushed back into the second half, and changes in the product portfolio appeared to have affected our blended ASP. In the second quarter, shipments of some high-value ad

And these factors are likely to gradually ease in the second half.

As HBM4 shipments ramp up in earnest and the 1C nanometer conventional DRAM shipment increases,

We expect bid growth in the second half to be higher than the level in the first half.

In addition, considering customer demand and the changing product mix, the growing HBM4 sales

and the higher contribution from value-add products will have a positive impact on our blended ASP as well.

This will result in higher shipment volumes and continued improvement in the product mix, which will then push up our ASP

as well as earnings in the second half.

When running our marketing strategy when running our sales strategy

Instead of focusing on short-term price movements or profitability, we consider a comprehensive set of factors including demand visibility, long-term customer relationships, and supply-demand dynamics across individual product segments. And this principle will remain as we try to capture market growth opportunities while delivering stable and sustainable earnings growth. Thank you and next question please.

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

Thank you. My questions are on HBM.

Now, some believe that competitors have made rapid progress in HBM recently. Then what is the competitiveness of our HBM4 and the key differentiators that will enable the company to maintain its leadership in the HBM market?

Yes, thank you for the question. I will answer it. The HBM4 competitiveness is based on the performance required by the customer,

The HBN4 competitiveness is completed not only by delivering the required performance, but also by the capability to supply at scale with stable yield and consistent quality.

S.K. Hynix Inc S.K. Hynix Inc

And SK Hynix has consistently demonstrated these capabilities since the HBM2E generation. Our accumulated competitiveness in time-to-market, product performance, mass production yield, quality, and customer trust are the differentiators that cannot be replicated in a short period of time.

Ah, 이를 기반으로 HBM4 역시 And building on this foundation, we began mass production of HBM-4 for key customers in the second quarter

with the yield and quality today nearing the levels of HBM3E, which is already in the maturity stage. Our current focus is on steadily ramping up production capacity.

And as mentioned earlier, we have also completed HBM4E sample delivery to customers. We have applied optimized manufacturing process with proven technology maturity and production stability. Development is underway smoothly in line with our roadmap.

aiming at volume production beginning in 2027. Not stopping there, we are also proactively preparing next-generation technologies. In addition to hybrid bonding, we are developing iHBM technology to effectively provide thermal dissipation in future products such as HBM5. The IHBM integrates cooling elements within the package and is expected to reduce thermal resistance by more than 30%, improving system stability and operational efficiency in high-performance, high-density AI environment.

As the AI market expands and the performance and packaging structure of AI accelerators are enhanced, customers will be able to test the proven production capacity, quality, As the AI market continues to expand and AI accelerators become more sophisticated in performance and packaging,

We believe customers will place even greater value on partners with proven manufacturing capability, quality, and reliable supply. Since HBM is a high-value ag product, quality issues can result in significant cost for customers and broad impact on overall system.

DanSan is based on early joint development experience and long-term cooperation with customers, Leveraging our early co-development experience with customers and long-standing strategic partnerships, we will continue to deliver the right products reliably at the right time while leading the migration to next generation technologies.

This will enable us to sustain our leadership in the HBA market. Thank you, and we will take the next question.

The following question will be presented by Nicholas Goddard from UBS. Please go ahead with your question.

Good morning. Thanks for taking my questions. What is the status for HBM price negotiations for 2027? And could you please explain the overall situation regarding the contract discussions, including the reactor outlook for pricing for both HBM-3E4 and also HBM-4E4 coming? Thank you.

Thank you for the question. The first question is about the current status of the HBM store negotiation in 2027. Secondly, including HBM 3, 4, and the upcoming HBM 4, 2, please explain the contract discussion situation including the price trend. Thank you for the question. I will answer it.

Thank you for the question.

Discussion is underway for 2027 HBM supply volume and pricing with our key customers, which is progressing smoothly supported by solid customer demand. But of course, we cannot disclose the contractual terms or pricing details for individual customers.

Recently, as the price of general DRAM is rising rapidly, it is important to consider

With conventional DRAM prices rising sharply in recent months, such market environment may also have some influence on our HBM pricing discussions. Having said that, of course, HBM pricing is not determined solely by conventional DRAM prices.

Compared with conventional DRAM, HBM requires much greater resources including more wafer input

As each generation evolves, customer requirements for performance and quality continue to rise, while product development and qualification become increasingly complex. As such, our pricing discussions take into account a comprehensive set of factors, including conventional DRAM pricing and market supply demand, the resources and opportunity costs related with HBM production, technical complexity, and the value that our products deliver to our customers.

Our objective is to secure appropriate profitability that corresponds to the differentiated value that we provide to the customers

While leading the healthy and sustainable growth of the AI ecosystem. On the back of our accumulated technological leadership, cost competitiveness, stable manufacturing capability, strong trust and collaboration with our customers, we will continue to maintain solid profitability in our HBM business. Through successful product generation migration and continued value creation for customers, we aim to solidify our position as the strategic partner that grows together with our customers in the AI era. Ultimately, our focus remains on delivering sustainable growth and profitability over the long term. Thank you and the next question please.

The following question will be presented by Sanjeev Rana from CLSA Securities Korea. Please go ahead with your question.

Hi, good morning. Thank you for taking my question. My question is about the production capacity expansion. In addition to the recent announcements of large-scale investments in Korea, there is also a growing discussion about expanding overseas production in countries such as U.S. and Japan. Could you please elaborate on the company's investment strategy and its direction both in Korea and internationally? Thank you.

Q. My question is related to the expansion of production capacity. Recently, in addition to the large-scale investment announcement in Korea, it has also been discussed about the expansion of production in overseas countries such as the United States and Japan. Please explain the direction of investment within the country. A. Thank you for the question.

In the era of AI, not only the technology competitiveness, but also the supply capability that can respond to the quantity desired by the customer at the same time is the key competitiveness.

Thank you for the question. In the AI era, technological leadership alone is not enough. The ability to supply the required volume at the right time has also become a critical part of competitiveness. And especially at a time like today with extreme supply shortage, It is a duty of the supplier to provide the memory product needed for the ecosystem.

The company's medium to long-term investment direction is that we will make timely investment

in accordance with the AI memory demand, while at the same time executing CAPEX based on business feasibility and investment efficiency.

And for the medium to long term,

We intend to secure additional manufacturing capacity through the most efficient combination of maximizing the utilization of our existing production site and developing new infrastructure where necessary. So, inside Korea, we will continue to strengthen the 2000N Yongin as our key production hubs for next-generation DRAM and AM memory, while enhancing Cheongju's manufacturing capability for both NAND and advanced packaging. The recently announced large-scale investment is also part of this strategy to proactively secure the manufacturing base and infrastructure that is needed to support future demand. And looking ahead, for the future production base, rather than differentiating between domestic or overseas, the basic direction is to make the optimum decision based on a range of factors such as power supply, water, human resources, the supply chain, semiconductor ecosystem, as well as customer accessibility.

However, as of now, in addition to the already announced investment plan, there is no specific decision made regarding additional new production infrastructure investment.

Having said that, at this time, there are no further decisions made in addition to the investment that has already been announced.

In the future, the company will make a balanced review of the use of existing assets and new investment while ensuring that there are few production bases that meet the increasing customer demand.

And going forward, the company will continue to try to secure the production base at the right time to respond to customer demand while continuing to enhance investment efficiency by utilizing existing assets and also considering new investment. Thank you and we will take the next question.

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

Yes, hello. I am Hyunkyun Ryu from Daishin Securities. I would like to ask you a question related to lenses. Recently, the expansion of AI input and the increase in the demand for KB cache off-roading has quickly expanded the role of ESSD. My questions are on NAND. The expansion in AI inference and demand for KB cache offloading is rapidly increasing the role of enterprise SSDs.

and could you also discuss your strategy for a different product segment including QLC SSDs for HDD replacement and high-performance SSDs based on SLC mode because competition in these segments also appears to be intensifying.

As mentioned, the AI market is expanding from the learning center to the input center, and NAND acts as a core component

As the questioner has observed, the AI market is evolving from a training-centric to an inference-centric environment, where NAND is rapidly becoming a core component of the AI memory hierarchy. As a result, we also see that demand for NAND is quickly rising centered on ESSDs, and we believe that this trend is likely to continue.

At the same time, we believe that the AI storage market cannot be addressed with

a single technology. Requirements for latency, throughput, power, capacity, and TCO all differ depending on the customer.

But customers are not necessarily asking for specific technologies or media.

So what matters is the ability to reliably deliver the performance and responsiveness required for each workload. So our NAND strategy for the AI era, we believe, is not about choosing out of SLC, TLC, or QLC. Rather, it is about providing the optimal storage portfolio that is customized to each customer's workload.

For example, in areas where storage efficiency and economic efficiency are important, such as AI data lake or HDD replacement, we believe that a large QLC ESLC will be the most competitive solution.

For example, in applications like AI data lake and HDD replacement, where storage efficiency and cost competitiveness are important, high-capacity QLC-based eSSDs can be the most competitive solution. Accordingly, we are continuing to strengthen our product lineup in this segment. At the same time, we are also focusing on developing new tier AI storage solutions to address emerging applications like KB cache offloading and near GPU storage.

Rather than focusing on any single NAND technology, SK Hynix is developing solutions that optimize the strengths of NAND combined with firmware

enabling us to deliver the most efficient performance for each customer workload.

As a result, we are expanding our portfolio across multiple usages including high-performance TLC ESSD,

high-capacity PLCE SSD and high-performance SSDs utilizing SLC mode.

In the end, in the AI era, it will not be a single SSD that will handle all the workload. Instead, AI systems will adopt

a storage hierarchy optimized for each workload.

With a comprehensive storage portfolio spanning all of these segments, SK Hynix will proactively address the evolving needs of AI storage

while expanding new long-term growth opportunities for our NAN business. Thank you and we will take the next question.

The following question will be presented by Youngho Ryu from NH Investment and Securities. Please go ahead with your question.

Thank you. My question is on the ADRs which is receiving a lot of market interest.

Q. How is the two-way fungibility of ADRs being managed at this time? And also, does the company have any plans to increase the proportion of ADRs outstanding in the future? A.

Yes, I will answer your question. ADRs can be transferred freely to Wonju from July 30, the day after the completion of the Korean exchange of Wonju. However,

Hynix Inc S & Gdr 144A Now beginning on July 30th, which will be the day after the completion of our stocks being listed on the Korea Exchange, the ADRs can be freely converted to the stocks. But conversions of stocks into ADRs may be limited due to the conversion process and the conversion limit as well. Based on some cases of Korean companies with DR programs, the conversion of stocks into ADRs may require the issuer to complete some regulatory filing process, which could take several weeks.

또한 ADR의 총 발행 잔량은 ADR 전환 한도를 초과할 수는 없습니다. In addition, the total number of ADRs outstanding cannot go over the ADR conversion limit. At present, the conversion limit has been set at 17,790,000 shares

equivalent to the number of shares issued in this ADR offering.

And whether to increase the proportion of ADRs will be evaluated after looking into the relevant regulatory environment as well as other factors.

and at this time no decisions have been made. Thank you and we will take the last question.

The last question will be presented by Sherm Lee from DS Investment and Securities. Please go ahead with your question.

Hello, I'm Lee Soorim from GS Securities. Thank you for your question. Recently, due to the inflow of large-scale stimulus through the issuance of Chiokxia shares and ADR, our property cash has increased significantly. I wonder what the capital allocation strategy will be like. In particular, please explain to us if you have any plans to share additional shares this year.

Thank you for taking my questions. Following the recent sale of the company's share in Kioxia, as well as the ADR offering, the company has significantly increased its cash position. Could you discuss your capital allocation strategy? And in particular, are there any plans for additional shareholder returns this year?

The company's capital allocation strategy is now focusing on maintaining the balance among the three goals.

Making timely investments to capture the structural growth opportunities in the AI era, preserving a sound financial position, and enhancing shareholder value through shareholder returns. Now with regards to shareholder returns, we do realize that there is strong level of market interest and we are currently evaluating various options for additional shareholder returns.

However, due to restrictions on regulations and procedures related to ADR public relations, we would like to ask you to provide additional information at this point regarding the new important information that has not been disclosed in the public relations process.

But due to regulatory requirements and procedural restrictions related to the ADR offering, please understand that we cannot disclose any new material information that was not included in the offering documents. While we cannot provide the specifics regarding the format, size, or timing of any additional shareholder return, we do intend to communicate our plans to the market within the year once they have been finalized. And down the road, we will continue to execute investment to support growth in a timely manner, maintain sound financial structure, and pursue the kind of capital allocation strategy that can enhance shareholder value through a sustainable cash generation.

Thank you very much. And that concludes the SK Hynix 2026

2nd Quarter Earnings Release Conference Call