SK Hynix demonstrated solid performance amid memory off-season and global supply chain challenges, maintaining the standing of Korea's semiconductor industry.

SK Hynix announced its operating results through a conference call on the 27th. The company reported Q1 revenue of 12.1557 trillion won, operating profit of 2.8596 trillion won, and net profit of 1.9829 trillion won. The company stated it achieved record Q1 revenue, surpassing levels from Q1 2018, which was the peak boom period, by over 3 trillion won.

Revenue declined 2% quarter-over-quarter but increased 43% year-over-year. Operating profit recorded -32% and 116% respectively compared to the previous quarter and year-over-year. Q1 operating profit margin stood at 24%, down 10 percentage points from the previous quarter's 34%, but up 8 percentage points compared to the same period last year. Net profit declined 40% quarter-over-quarter while achieving 100% growth year-over-year.

The analysis attributes this to memory product price declines being smaller than market expectations and the contribution of Solidigm's revenue, which was incorporated as a subsidiary at the end of last year. Operating profit of 2.8596 trillion won also represents the second-highest Q1 performance since 2018.

An SK Hynix official stated, "Despite Q1 being a seasonally off-peak period, we achieved meaningful results," and added, "Amid high uncertainties including interest rate hikes in response to rising consumer prices, prolonged supply chain issues, and China's COVID-19 lockdowns, weakened consumer sentiment due to inflation has had a negative impact on PC and IT product demand."

The smartphone market is expected to see slowing demand growth centered on Greater China, and concerns remain regarding second-half demand outlook based on China's lockdown situation, which remains a variable that will heighten future uncertainties. However, as the second half approaches, major commercial events are expected to increase and manufacturers are planning to ramp up shipments, so IT product demand is anticipated to recover.

For the server market, similar to the 2018 cloud boom situation, CSP (Cloud Service Provider) demand is expected to continue throughout the year, and the company explained that server-bound demand is sufficient to offset the sluggish IT product performance in the first half.

SK Hynix stated in the conference call, "For servers, based on our own and external research combined, corporate IT demand is not only robust but also increasing," and added, "Given that new data center construction was delayed last year due to COVID-19 issues, we can anticipate strong server demand growth this year," presenting an optimistic outlook.

Furthermore, the company forecasted "consistent strength in the second half for Baseboard Management Controller (BMC) and CPU shipments," and stated, "As the 8-channel server CPU launched in the first half of last year ramps up this year, overall server demand will continue."



However, quality degradation was observed in some DRAM products sold in 2020, and SK Hynix decided to recognize related costs in its financial statements. In the conference call, the company stated, "Problems occurred due to some process changes in DRAM manufacturing, and quality degradation in products from specific periods produced under changed conditions began to be reported from the middle of last year."

SK Hynix has completed root cause analysis and plans to proceed with compensation procedures including product replacement following consultation with customers. When conservatively estimated, the costs to be incurred in this process amount to 380 billion won, which will be accounted for as a one-time sales warranty provision in Q1.

In the conference call, SK Hynix stated, "We will make thorough efforts in the quality verification process to maintain industry-leading quality standards."

Although one-time costs occurred in Q1, SK Hynix expects no impact on subsequent quarterly results as the company plans to proceed with technology development and next-generation product production on schedule. The company stated, "We are expanding production share by improving yields in 10-nanometer-class fourth-generation (1a) DRAM and 176-layer 4D NAND products, and next-generation product development is progressing smoothly."

In particular, an official stated in the conference call, "The improved situation in NAND ramp-up compared to competitors reflects how SK Hynix, as a latecomer, early adopted next-generation technology to catch up with competitors," and explained, "Though the early adoption presented difficulties in process and cost aspects at the time, it has now stabilized, and we currently maintain a lead compared to competitors."

SK Hynix Vice Chairman Roh Jong-won said, "Despite Q1 being a seasonally off-peak period, we achieved meaningful results," and stated, "As server-bound product demand is increasing, memory semiconductor market conditions are expected to improve as we move into the second half." He further added, "While we currently face some equipment supply challenges, we will ensure there are no disruptions in meeting customer demand by continuously improving process yield."