SEOUL (Reuters) – South Korea’s SK Hynix is optimistic about the future of chip profits, thanks to a boom in artificial intelligence (AI). The company recently posted a significantly narrower third-quarter loss compared to the previous quarter. While demand for commodity chips used in smartphones and computers has been slow, the strong demand for advanced chips used in AI has helped offset the impact.
According to SK Hynix, its business selling DRAM chips, which are used in tech devices, returned to profit in the third quarter. The chipmaker stated, “The DRAM business… is expected to continue to improve along with the generative AI boom. The NAND flash business, which continues to suffer losses, is also showing signs of improvement.”
In the third quarter, SK Hynix reported a third-quarter operating loss of 1.8 trillion won ($1.33 billion), compared to a profit of 1.7 trillion won a year earlier. Although it marked the fourth consecutive quarterly loss for the company, it showed improvement from the first quarter’s 3.4 trillion won loss and the second quarter’s 2.9 trillion won loss. However, the result slightly missed analysts’ estimates, with revenue falling 18% year-on-year to 9.1 trillion won.
On Oct 31, Samsung Electronics, the No.1 memory chipmaker, is set to release its full third-quarter results. Industry conditions are expected to improve, mirroring the positive outlook from SK Hynix. The memory chip industry has experienced a prolonged downturn since last year, but analysts anticipate better business conditions.
While SK Hynix’s NAND flash chip business for data storage likely reported about 2 trillion won in losses in the third quarter due to decreased demand, the appetite for its advanced DRAM chips remains strong. These chips, such as high bandwidth memory (HBM) chips, are used in the fast-growing field of generative AI. SK Hynix has a competitive advantage in this area as it was the first to develop HBM3 chips and has secured Nvidia as a client.
SK Hynix stated that the effect of memory chipmakers’ production cuts is starting to show as clients are placing new orders and chip prices are stabilising. Analysts predict that SK Hynix will swing to a profit in the current quarter as smartphone and PC manufacturers, faced with weak consumer demand, gradually reduce their chip inventories to levels low enough to resume purchases. Notably, memory chip prices started rebounding near the end of the third quarter, signalling improving demand.
Overall, SK Hynix expects the AI industry to continue driving chip profits, even amidst the impact of slow demand for commodity chips. With advancements in generative AI and the increasing adoption of AI technologies, the company remains optimistic about its future financial performance.
