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SK Hynix Foresees Rebound in Memory Semiconductor Industry

Despite a challenging market environment, the company anticipates recovery as inventory decreases and demand for DDR5 and ChatGPT-related chips grows.

After a nearly year-long slump in the memory semiconductor industry, SK Hynix has hinted at the possibility of a ‘first quarter = bottom’ scenario for the first time in the sector. After suffering losses amounting to trillions of won for two consecutive quarters, the company now forecasts a rebound in the industry starting in the second quarter. This anticipated upturn can be attributed to favorable factors such as reduced inventory due to production cuts by the three memory companies and increased demand for DDR5 and ChatGPT-related chips. It is significant that one of the three memory semiconductor companies, rather than a securities company or market research firm, has suggested the possibility of a bottom.

During a conference call held after announcing its Q1 results on April 26, SK Hynix stated, “The memory market environment is still difficult, but it seems to be passing the bottom.” This is the first instance of the memory industry formalizing the expression “passing the bottom”. Previously, stock houses and market research companies had only mentioned that “market conditions will improve as the second half progresses”, but there was no explicit reference to ‘first quarter = bottom’. Last month, Micron also commented on the outlook for this year’s business conditions, stating a gradual improvement, but with operating margin and cash flow remaining significantly negative throughout this year.

SK Hynix’s mention of ‘first quarter = bottom’ is noteworthy because it comes amidst significant deterioration in the industry. The company’s Q1 loss amounted to KRW 3,402.3 billion ($2.55 billion), marking the largest quarterly loss since its incorporation into the SK Group. Including the deficit in Q4 of last year (KRW 1,898.4 billion or $1.42 billion), the total loss over two quarters exceeds KRW 5 trillion ($3.75 billion).

However, SK Hynix highlighted several ‘points of rebound’ during the conference call. Firstly, in terms of inventory, Q1 inventories reached KRW 17.182 trillion ($12.89 billion), up 9.7% from KRW 15.665 trillion ($11.75 billion) in the previous quarter. The company plans to address the increased inventory by adjusting wafer input flexibly, primarily for products with a high inventory. SK Hynix predicts that starting in the second quarter, the impact of production cuts by major companies will begin to emerge in earnest, and inventory levels across the industry will gradually decline. It also anticipates that stocks will peak in the first half of the year.

Secondly, concerning price, SK Hynix reported that the decline in DRAM ASP (Average Selling Price) in Q1 was in the upper 10% range. Although still significant, the decline has slowed compared to the previous quarter (Q4 2022). NAND flash ASP fell about 10% in Q1. SK Hynix expects that as overall inventory decreases and production cuts are implemented from Q2, memory usage will increase according to price elasticity. While a sharp price increase in Q2 is not anticipated, the price decline is expected to slow significantly.

The company also noted differences in demand forecasts for each product. Desktop PC shipments are projected to exhibit negative growth this year, following last year. However, laptops and tablets will offset the decline in PC shipments, thereby increasing memory demand. Though meaningful growth in the mobile sector is unlikely, there are signs of increasing memory demand.

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