SK Hynix logs surprise Q4 profit, aims to be 'total AI memory chip provider'

Illustration picture of memory chips by SK Hynix

By Joyce Lee and Heekyong Yang

SEOUL (Reuters) -South Korea's SK Hynix Inc said on Thursday it will focus on high-end memory semiconductors used in artificial intelligence chipsets this year after strong demand drove a surprise profit in the fourth quarter.

The world's second-biggest memory chipmaker which counts AI-chip leader Nvidia as a key client reported an operating profit of 346 billion won ($259.8 million) for the October-December quarter. Revenue soared 47%.

That beat expectations for a 192 billion won operating loss and marked its first operating profit since the third quarter of 2022. It had logged a loss of 1.9 trillion won a year earlier.

"We achieved (a) turnaround...following a protracted downturn, thanks to our technological leadership in the AI memory space," CFO Kim Woohyun said in a statement, adding that the company would strive to "grow into a total AI memory provider".

SK Hynix's advanced DRAM chips such as high bandwidth memory (HBM) chips are in high demand for use in the graphic processing units (GPUs) made by Nvidia and others that process vast amounts of data in generative AI.

The company said its sales of HBM3 chips - which it developed ahead of rivals - increased by more than fivefold in 2023 from a year earlier.

With demand set to grow from clients like Nvidia, cloud service providers and other big tech firms as AI functions are increasingly incorporated into devices, SK Hynix's lead in HBM chip development is set to help it improve profitability and outperform the market this year, analysts said.

"For hot (AI) products, demand is so strong that clients are complaining they can't get enough supplies. It's a completely different story for the rest of the memory industry which is slowly recovering from weak demand," Greg Roh, head of research at Hyundai Motor Securities.

Roh estimated that HBM chips will climb to account for 15% of industry-wide DRAM sales this year, up from 8% in 2023.

SK Hynix plans to begin mass production of its next HBM version, called HBM3E, in the first half of the year. It is also developing the next-generation chip called HBM4.

The company's shares, which have surged 18% since its last quarterly earnings release on the upbeat outlook for AI memory chips, fell 2.6% in afternoon trade due to profit-taking, analysts said.

For the wider market, SK Hynix said chip prices will improve this year as clients need to restock and manufacturers will continue to cut legacy chip production. Its fourth-quarter results were helped by restocking demand from Chinese mobile phone makers.

Bigger rival Samsung Electronics is also expected to flag improving memory chip demand when it reports detailed fourth-quarter results on Jan. 31.

($1 = 1,331.9400 won)

(Reporting by Joyce Lee and Heekyong Yang; Editing by Stephen Coates and Edwina Gibbs)