| Recorded 10% operating profit margin and 8% net profit margin in Q2
DRAM and NAND production volumes adjusted amid market downturn
| PC and Graphics DRAM Demand Recovery Trend Expected to Continue

SK Hynix announced on July 25 that it recorded sales of 6.4522 trillion won, operating profit of 637.6 billion won (operating profit margin of 10%), and net profit of 537 billion won (net profit margin of 8%) in the second quarter of 2019.

Sales and operating profit in the second quarter fell by 5% and 53%, respectively, compared to the previous quarter, as the level of demand recovery fell short of expectations and the decline in prices was greater than anticipated.

DRAM shipments increased by 13% compared to the previous quarter as the company actively responded to the mobile and PC markets, where demand growth was relatively large, but the average selling price fell by 24% due to continued price weakness.

NAND flash shipments also increased by 40% compared to the previous quarter due to a recovery in demand driven by falling prices, but the average selling price fell by 25%.


Second Half Market Outlook
SK Hynix analyzed that demand for server DRAM remains sluggish and uncertainty in the mobile DRAM market has increased due to the impact of the U.S.-China trade dispute. However, demand for PC and graphics DRAM began to recover from the end of the second quarter, and this trend is expected to continue in the second half of the year.

It was stated that the NAND flash market is seeing a continuous recovery in demand as prices steadily decline. It was added that the pace of price decline is expected to slow in the second half of the year as suppliers' inventory burdens rapidly decrease and the supply-demand imbalance is highly likely to be resolved.


DRAM, NAND Flash Production Volume and Investment Adjustment
SK Hynix plans to adjust production and investment to cope with changes in the market environment.

DRAM production capacity will be reduced starting in the fourth quarter. In order to strengthen the competitiveness of the recently growing CIS (CMOS Image Sensor) business, a portion of the DRAM capacity at the Icheon M10 plant will be converted to CIS mass production starting in the second half of the year. With the added impact of capacity reduction due to the transition to finer DRAM processes, DRAM capacity is expected to continue decreasing until next year.

SK Hynix added that it would also reduce the input of NAND flash wafers by more than 15%, following its announcement that it would cut them by more than 10% compared to last year.

We plan to review the securing of additional cleanrooms at the Cheongju M15 plant and the timing of equipment delivery at the Icheon M16 plant, which is scheduled for completion in the second half of next year, while taking demand conditions into account. Accordingly, next year's investment amount is also expected to decrease significantly compared to this year.


Next-generation technology development and high value-added product sales plan
SK Hynix continues to develop next-generation micro-process technologies and sell high-capacity, high-value-added products.

The production share of 10nm-class 1st generation (1x) and 2nd generation (1y) DRAMs will be increased to 80% by the end of the year, and sales of products using the 10nm-class 2nd generation process will begin in the second half of the year, primarily for computing use.

While operating NAND flash primarily with 72-layer technology, the company plans to increase the proportion of 96-layer 4D NAND starting in the second half of the year to focus on high-end smartphones and SSD markets. It also plans to proceed with preparations for mass production and sales of 128-layer 1-terabit (Tb) Triple Level Cell (TLC) 4D NAND.

An SK Hynix official stated, “We will flexibly adjust production and investment in line with changes in the market environment and continuously strengthen our product and technological competitiveness in preparation for mid-to-long-term growth in the memory sector.”