SK hynix surpassed Samsung Electronics, which has maintained its position as the world's leading memory semiconductor producer, recording its highest-ever operating profit since its establishment last year. This marks the first time that SK hynix has outperformed Samsung Electronics in terms of annual operating profit. It is expected that as the high bandwidth memory (HBM) market, where SK hynix shows dominance, expands this year, the profitability gap between the two companies will widen further.
During the conference call held on the 23rd regarding the 2024 fourth-quarter earnings, SK hynix stated, "This year's HBM sales are expected to increase by over 100% compared to the previous year," and noted, "As customer demand for application-specific integrated circuits (ASICs) significantly increases, we believe our customer base will expand as well." It is anticipated that the supply of the highly profitable HBM3E (5th generation HBM) 12-layer product will account for over 50% of the shipments in the first half of this year.
As the demand and growth trend for general DRAM, a traditional cash cow for Samsung Electronics and SK hynix, stagnate, the biggest driver of SK hynix's record performance is the high profit margin of HBM. The operating profit margin for HBM is 5 to 6 times greater than that of conventional DRAM. Additionally, with an increase in Chinese DRAM supply, the three major players in DRAM—Samsung Electronics, SK hynix, and Micron—are seeking breakthroughs in HBM rather than on the declining prices of general DRAM.
◇ SK hynix surpasses Samsung Electronics… "Expecting the largest results this year as well"
SK hynix recorded an operating profit of 23.4673 trillion won last year, significantly exceeding Samsung Electronics' semiconductor division profit forecast of 15 trillion won during the same period. Samsung Electronics, which recorded an annual surplus of 44.57 trillion won in its semiconductor business during the super boom in 2018, suffered a blow to its pride as it ceded the lead in the HBM market, the most crucial battleground in the memory semiconductor sector, to SK hynix last year.
There are forecasts suggesting that SK hynix will continue to lead the HBM market and achieve the largest results ever this year. This follows the company's rapid delivery of HBM3E 12-layer products to NVIDIA faster than any other memory semiconductor company last year, and it is expected to supply next-generation HBM products like 6th generation HBM (HBM4) to the market ahead of its competitors this year. Kim Hyung-tae, a researcher at Shinhan Investment Corp., stated, "The polarization of high-value demand is expected to further enhance SK hynix’s dominance in the HBM market," adding that "annual results are expected to surpass all-time highs this year."
In contrast, Samsung Electronics, which is struggling in the HBM market, is projected to face difficulty in improving its performance due to its relative vulnerability to the slowdown in the general memory semiconductor sector. Kim Kwang-jin, a researcher at Hanwha Investment & Securities, noted, "Given that the impact of the traditional demand side weakness is expected to continue, the low HBM proportion relative to competitors will likely place them at a disadvantage in terms of shipment and price defense," and warned that "if the expansion of HBM3E 12-layer sales related to major U.S. customers expected in the third quarter does not materialize, it is highly likely that they will continue to face a disadvantage against competitors in terms of both shipment and price in the memory sector."
Additionally, the foundry sector, which is the non-memory division, is also struggling to escape from losses and is expected to hamper the overall semiconductor division's performance. Kim noted, "The losses in the non-memory sector are expected to shrink somewhat, but substantial operating losses are likely to persist."
◇ Chinese memory offensive… SK hynix reduces the proportion of old DRAM
The biggest key to the memory semiconductor market this year is the quantity offensive of Chinese DRAM. Chinese firm CXMT, which primarily produces older DRAM like DDR4, plans to increase its DRAM production capacity by 50% compared to last year to enhance its market penetration. As the supply of Chinese DRAM, which holds an advantage in price competition, increases, the profitability of DRAM for Samsung Electronics and SK hynix is inevitably expected to deteriorate.
Consequently, SK hynix has decided to reduce the production proportion of old DRAM. During the conference call, SK hynix stated, "As the supply of Chinese DRAM increases, DDR4 DRAM prices are being affected," and added that "general DRAM prices are expected to remain weak for the time being this year." They also stated, "The revenue share of legacy semiconductors like DDR4 and LPDDR4 will significantly decrease from last year's 20% to a single digit this year."
SK hynix plans to pivot its investments by reducing its share in the general DRAM market, where Chinese influence is growing, while expanding its capacity for HBM products and high-performance server DDR5 DRAM production. SK hynix asserted that "the DRAM leading-edge processes adopted by major players (such as SK hynix and Samsung Electronics) differ significantly from those of Chinese companies, and there will be a clear difference in the quality and performance of DDR5," thereby expressing confidence in their competitive edge in the server DRAM market. Furthermore, as supply of next-generation HBM (HBM4) is set to commence in the second half of the year, profitability is expected to solidify further.
Meanwhile, in the securities industry, projections indicate that SK hynix's annual operating profit this year will increase by about 10 trillion won to 33 trillion won, thanks to the expanded sales proportion of HBM3E, the effects of HBM4 supply, and increased sales of server DDR5 DRAM. This figure is similar to Samsung Electronics' operating profit outlook across all sectors, including semiconductors, mobile, and home appliances, this year.