The Samsung Rival Taking an Early Lead in the Race for AI Memory Chips

SK Hynix still reported a net loss—although that is partly because it wrote down the value of its stake in Japanese chip maker Kioxia.
SK Hynix still reported a net loss—although that is partly because it wrote down the value of its stake in Japanese chip maker Kioxia.

Summary

Sales of SK Hynix’s memory chips used by AI have boomed—but it faces a major fight with its Korean rival.

The memory-chip market is finally turning around. South Korea’s SK Hynix, one of the world’s top memory producers, is well placed to enjoy it. But to boost margins back near pandemic-era highs it will need to fully capitalize on the artificial intelligence boom—and fight off strong rivals like Samsung.

The Korean company on Thursday reported that its operating profit turned positive last quarter, ending four consecutive quarters of losses. Revenue grew 47% year on year. SK Hynix still reported a net loss—although that is partly because it wrote down the value of its stake in Japanese chip maker Kioxia.

An operating profit margin of 3% is still a far cry from peak levels of more than 50% a few years ago. But it is a sign that the memory-chip market, which had been in the deep freeze for the past year or so, is starting to thaw.

Chip demand from smartphones and personal computers has begun to revive as manufacturers have slowly digested large inventories left over from the end of the pandemic-era electronics boom. But mostly the recovery is being driven by surging demand from artificial intelligence. Generative AI applications like ChatGPT require large amounts of memory chips for number crunching.

SK Hynix has emerged as an early leader in the types of memory chips that are widely used in AI—such as so-called high bandwidth memory. Sales of the company’s HBM3, the latest generation of HBM, more than quintupled year over year in the last quarter.

Industry tracker TrendForce expects contract prices for DRAM, a type of memory chip used in processing, to increase 18% to 23% this quarter from a quarter earlier. That is partly because of a product mix that will tilt further toward high-price products like HBM. And it bodes well for SK Hynix, which could continue to improve its margins.

Moreover, SK Hynix has stolen a march on Korean rival Samsung Electronics in HBM, though the two will likely compete head-to-head this year. TrendForce estimates that both companies will each account for around half of the HBM market in 2024.

After cutting its capital expenditures by more than 50% last year, SK Hynix still sounds cautious about expanding capacity. Its capital spending will increase this year, but at a “minimum level," the company said. And expenditures will likely focus on hot AI-related products.

SK Hynix’s stock has nearly doubled since the beginning of 2023 because of its AI capabilities. The company said on Thursday it aims to become the “total AI memory provider."

The firm is off to a good start but still has a lot to prove this year—especially with Samsung nipping at its heels.

Write to Jacky Wong at jacky.wong@wsj.com

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
more

MINT SPECIALS

Switch to the Mint app for fast and personalized news - Get App