SK Hynix logs loss for 3rd straight quarter in Q2 but eyes recovery in H2

SK Hynix Inc. reported an operating loss in the second quarter of this year, extending its losing streak to three consecutive quarters and inflating its first half-year loss to over 6 trillion won ($4.7 billion) on still-sluggish chip demand.

But the world’s second-largest memory chipmaker expects a recovery in earnings later this year thanks to the industrywide chip output cut and growing demand for high-end chip products in line with the artificial intelligence boom.

SK Hynix on Wednesday reported in a regulatory filing that it logged an operating loss of 2.88 trillion won on a consolidated basis in the April-June period, swinging from a profit of 4.20 trillion won in the same period last year.

It was the third-consecutive quarterly loss since its first operating loss in a decade in the fourth quarter of last year. In the first six months of this year, the South Korean chip giant logged more than 6 trillion won in operating losses.

The losses also exceeded the market consensus of 2.62 trillion won tallied by Yonhap Infomax.

Its sales in the second quarter decreased 47.1% on-year to 7.31 trillion won, while the bottom line dipped into the red, a net loss of 2.99 trillion won, from a profit a year ago.

SK Hynix shares closed 0.4% lower at 113,000 won apiece on Wednesday.

But compared with the previous quarter, the company’s sales increased by 43.6% and the operating loss narrowed from its record quarterly loss of 3.4 trillion won.

AI CHIPS BODE WELL FOR OVERALL CHIP PRICES

SK Hynix blamed still-sluggish chip demand stemming from the economic downturn for the consecutive loss in the second quarter but expects a recovery in earnings in the second half of this year on solid demand for advanced memory chip products.

Demand for AI server memory chips surged on the ChatGPT-driven generative AI market boom, the company said in a press release on Wednesday.

Thanks to this, sales of high-end HBM3 and DDR5 DRAM products increased, leading to a 44% on-quarter gain in sales in the previous quarter and a 15% operating loss reduction, added the company.

Especially, sales of graphics DRAM chips accounted for more than 20% of the company’s entire memory chip sales as of the second quarter, according to the company’s earnings conference call on the same day.   

Further, strong demand for advanced AI chips lifted the average selling price of DRAM chips in the second quarter from the first quarter, more than offsetting the fall in regular DRAM prices, the company said.

“The global memory chip market has apparently entered its recovery cycle after bottoming out in the first quarter,” said Kim Woo-hyun, vice president and chief financial officer of SK Hynix.

“We will go all out to rapidly improve earnings with our leading high-end chip technologies.”

MORE FOCUS ON ADVANCED CHIPS

SK Hynix foresees demand for AI memory chips to remain strong in the latter half of this year, and does not expect worsening ripple effects of the industrywide slash in chip production.

It expects sales of premium and high-capacity DRAM products, such as HBM, DDR5 and LPDDR5 to grow by the mid-10% level in the third quarter from the second quarter.

Riding the AI boom, the company will focus on the sale of AI chip HBM3, high-performance DRAM DDR5 and LPDDR5 and SSD based on a 176-layer NAND.

The company is set to embark on mass production of the fifth-generation HBM, dubbed HBM3E, in the first half of next year and the sixth generation HBM4 in 2026, it unveiled during the conference call.

“We are determined to lead the HBM market with our extensive know-how and technological leadership as the market pioneer,” the company said.

SK Hynix has developed a new generation HBM every two years on average.

It cannot dismiss a possible investment freeze in AI technology later next year following the aggressive AI expansion in recent years but anticipated upgrades in large language model (LLM)-based generative AI chatbots, including hyper-personalization, to ease the slowdown in AI investment, the company forecast.

“The company has already secured orders from cloud and platform companies for next year,” it added.

The company will continue to invest in production facility expansion for DDR5 and HBM3 products with funds saved from the company’s cost-cutting efforts in a preemptive move to lead the next-generation premium chip market, said CFO Kim.

But that does mean that it would beef up its capital expenditures for this year. It will hold to its original plan to halve this year’s consolidated investment spending from last year’s.

Citing the slower drop in NAND chip inventories compared with DRAM inventories, the company has decided to cut NAND chip output by an additional 5% to 10% from its original plan, according to the company's conference call.

Coupled with the continued streamlining efforts, the additional NAND output reduction is expected to move up the normalization of the overall chip inventory level.

(Updated with SK Hynix’s memory chip market outlook for the rest of the year, its additional NAND chip output cut and this year’s capital expenditure plan)

Write to Jeong-Soo Hwang at hjs@hankyung.com

Sookyung Seo edited this article.