AI Boom Drives SK Hynix to Record Q3 Revenue and Profit

On Thursday, SK Hynix announced record quarterly profits and revenue, reflecting the strong market demand for memory chips used in artificial intelligence development alongside NVIDIA (NVDA.US) processors.

As a supplier to NVIDIA, the South Korean memory chip giant reported an operating profit of 7.03 trillion won ($5.1 billion) for the third quarter, compared to a loss of 1.8 trillion won in the same period last year, exceeding analysts' expectations of 6.9 trillion won. Revenue soared by 94% to 17.6 trillion won, slightly below market expectations of 18.2 trillion won.

So far this year, SK Hynix's stock price has risen by more than 35%, as the company has expanded its lead over Samsung Electronics (SSNLF.US) and Micron Technology (MU.US) in designing and supplying cutting-edge high-bandwidth memory (HBM) that powers NVIDIA's artificial intelligence accelerators. The company is expected to supply NVIDIA with its 12-layer stacked HBM3E memory in the fourth quarter.

In addition, strong demand for enterprise solid-state drives (used in data centers of large companies) has also boosted SK Hynix's earnings.

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SK Hynix said in a statement: "The demand for artificial intelligence memory, centered on data center customers, remains strong, and the company has achieved its highest revenue since its establishment by expanding sales of high-end products such as HBM and eSSD."

"In particular, HBM sales showed outstanding growth, increasing by more than 70% compared to the previous quarter and by more than 330% compared to the same period last year," the company added.

Bloomberg Intelligence analyst Masahiro Wakasugi said: "SK Hynix's operating profit margin in the third quarter improved compared to the second quarter, due to the increase in the average selling price (ASP) of DRAM chips, while Micron's ASP rose by 15% in the previous quarter. SK Hynix's dominant market share in HBM chips also helped achieve a robust operating profit margin, but demand for standard DRAM may be slowing down due to smartphones and PCs. The average selling price of NAND chips may rise slightly with Micron's increase."

The broader memory chip market is recovering from the downturn in demand for smartphones and PCs. The price of memory chips has rebounded after a long period of weakness.

SK Hynix said that its capital expenditure this year may exceed previous plans to keep pace with the growth of artificial intelligence hardware spending.

It is reported that the company has announced a series of investment plans this year, including investing $3.87 billion to establish an advanced packaging factory and artificial intelligence product research center in Indiana, USA.In South Korea, SK Hynix has also spent $14.6 billion to build a new memory chip complex and continues to make other investments in South Korea, including the government-supported Yongin Semiconductor Cluster project.

Strong growth in demand for HBM chips

Against the backdrop of SK Hynix's record performance, industry insiders' optimistic expectations for strong future demand for HBM seem to have not diminished at all.

At an event on Tuesday, SK Hynix CEO Kwak Noh-jung said that the company plans to mass-produce and supply its most advanced artificial intelligence chip, the 12-layer HBM3E, to customers including Nvidia.

"Our plan to mass-produce 12-layer HBM3E by the end of the year has not changed. Everything is going smoothly in terms of shipping and supply times," he said.

Kwak Noh-jung made the above remarks as a senior researcher at semiconductor research firm TrendForce predicted that the HBM market will continue to grow strongly next year, driven by surging demand from Nvidia and other artificial intelligence chip manufacturers.

TrendForce Senior Vice President of Research Operations Avril Wu said she expects the global HBM market to grow by 156% next year, from $18.2 billion this year to $46.7 billion. Additionally, its share of the DRAM market is expected to rise from 20% this year to 34% by 2025.

According to TrendForce, from the perspective of major artificial intelligence solution providers, there will be a significant shift in HBM specifications towards HBM3E, with an expected increase in 12-layer stacked products. The agency added that this shift is expected to increase the HBM capacity per chip.

Wu said that among HBM products, the share of the fifth-generation HBM chip HBM3E is expected to increase from 46% this year to 85% by 2025, mainly driven by Nvidia's Blackwell GPU.

She said that Nvidia will continue to dominate the artificial intelligence market next year, intensifying competition among major memory chip manufacturers such as Samsung Electronics, SK Hynix, and Micron Technology.Researchers at TrendForce predict that samples of the sixth-generation HBM4 will be released later next year, with companies such as Nvidia expected to officially adopt them in 2026.

Samsung in Trouble

In stark contrast to SK Hynix, rival Samsung warned earlier that its third-quarter profits would fall below market expectations and apologized for the disappointing performance, acknowledging difficulties in making progress in the supply of high-end chips.

Currently, Samsung supplies fourth-generation 8-layer HBM3 chips to clients such as Nvidia, Google (GOOGL.US), AMD (AMD.US), and Amazon's (AMZN.US) AWS, and provides HBM2E chips to Chinese companies.

Samsung is still striving to gain Nvidia's approval for its HBM3E chips.

As Samsung engages in fierce competition with rivals in the HBM field, Jun Young-hyun, the head of Samsung's semiconductor business and vice chairman of the DS division, vowed to significantly reduce chip executive positions and reorganize semiconductor-related businesses.

Samsung has also established a dedicated HBM chip development team and reached a cooperation with TSMC (TSM.US) on HBM4 chips.