SK hynix’s Icheon M16 factory./Courtesy of SK hynix

SK hynix is projected to record an operating profit nearing 9 trillion won in the second quarter of this year, buoyed by high-bandwidth memory (HBM). Observers also suggest that in the second half of this year, as the supply proportion of the high-margin 5th generation HBM (HBM3E) 12-layer increases, the company may usher in a quarterly operating profit era of 10 trillion won. The HBM revenue share of the entire DRAM business is expected to reach an all-time high.

According to industry sources on the 26th, SK hynix's proportion of HBM3E 12-layer in the second quarter is expected to account for more than half of the total HBM shipments, and this is projected to rise to over 80% in the second half of this year. As a result, SK hynix's operating profit and profit margins are being revised upward. The price of HBM3E 12-layer is known to be about 50% to 60% higher than the existing HBM3E 8-layer, and its profitability is also greater.

With the surge in artificial intelligence (AI) demand for memory, there is interest in whether SK hynix will enter the memory supercycle. In the third quarter of 2018, SK hynix's operating profit margin soared to 57%. The company maintained an operating profit margin above 50% from the fourth quarter of 2017 to the third quarter of 2018.

SK hynix is supplying the latest HBM, HBM3E, to its largest customer, NVIDIA, and has already completely sold out this year's supply. This year, HBM is expected to account for over 50% of SK hynix's total DRAM revenue. The proportion of HBM revenue was over 40% based on the fourth quarter of last year. Fueled by HBM sales, SK hynix achieved a record high of 66.193 trillion won in revenue and 23.4673 trillion won in operating profit last year.

If the current trend continues, SK hynix is likely to break its annual maximum operating profit record. Observing the current situation among the top three DRAM makers (Samsung Electronics, SK hynix, Micron), there is a disparity in operating profit depending on HBM revenue share. According to market research firm Omdia, the global DRAM industry's revenue in the first quarter is estimated to have decreased by 9% compared to the previous quarter, totaling $26.334 billion (approximately 36 trillion won). Despite the decline in HBM shipments, overall DRAM market share has been influenced by HBM dominance.

In the securities industry, the operating profit of Samsung Electronics' semiconductor (DS) division is expected to be in the early 2 trillion won range for the second quarter. Currently, general-purpose DRAM accounts for most of the revenue and operating profit, while the foundry (semiconductor contract manufacturing) and system LSI divisions are constraining performance due to losses. Kim Kwang-jin, a researcher at Hanwha Investment & Securities, noted, 'While the DS division's profits will improve from 1.1 trillion won in the first quarter to 2.2 trillion won in the second quarter due to a general increase in general-purpose DRAM prices, negative effects from the decline in the exchange rate and the foundry losses will limit profit improvements.'

According to market research firm TrendForce, SK hynix currently holds about 50% market share in the global HBM market. This gap is widening compared to competitors Samsung Electronics (30%) and Micron (20%). In particular, for the latest product, HBM3E, SK hynix’s market share reaches 70%, with the share of the more profitable 12-layer product increasing compared to the existing 8-layer.

Recently, Samsung Electronics also supplied AMD with HBM3E 12-layer products, hinting at a rebound in the second half of the year. However, considering NVIDIA's market share in the AI accelerator market, analyses suggest that AMD alone may not be sufficient to catch up to SK hynix. An industry insider explained, 'More than 80% of cutting-edge HBM purchases are being consumed by NVIDIA, and it will be difficult to find an opportunity for a rebound in the HBM market if unable to enter NVIDIA's supply chain.'