Thanks to the AI boom, SK Hynix, the world‘s second-largest memory chip maker, posted a surprising operating profit. The data showed that SK Hynix reported an operating profit of 346 billion won ($259 million) in the fourth quarter of 2023, compared to analysts‘ estimates of a loss of 169.9 billion won. Revenue climbed to 11.3 trillion won, beating analysts‘ top estimates.

SK Hynix said it turned around its operating results in the fourth quarter of last year for its first quarterly profit since the fourth quarter of 2022 due to rising demand for its high-end memory chip products.

The key driver of SK Hynix‘s earnings surge was HBM amid the AI boom.SK Hynix is a leader in high-bandwidth memory chips (HBM). Such chips are widely used for AI training in conjunction with NVIDIA‘s AI gas pedals. Investors are banking on generative AI to drive demand for servers, which need more next-generation DRAM (i.e., DDR5).

SK Hynix said HBM3 chip sales grew more than five times in the fourth quarter, while DDR5 chip sales grew more than four times. However, compared with the first two categories of products, NAND recovery is "relatively slow".

We managed to turn around after a long downturn thanks to our technology leadership in AI memory," said Kim Woohyun, the company‘s chief financial officer. He added that SK Hynix will strive to grow into a full-fledged AI memory supplier.

SK Hynix will start mass production of its main AI memory product (HBM3E) and continue to develop HBM4, while supplying high-performance, high-capacity products (DDR5, LPDDR5T) for the server and mobile markets in time to meet the growing demand for high-performance DRAM. For NAND, SK Hynix will prioritize streamlining investment and cost.

Sanjeev Rana, Korea analyst at Lyon Securities, said, "Hynix achieved its first operating profit in five quarters and is the first of its kind in the storage industry to recover from a string of losses." "It is clear that continued improvements in product mix, driven by increased HBM contributions, and a general recovery in average selling prices for memory chips will continue to drive the profit recovery in the coming quarters."

A few days ago, larger rival Samsung Electronics reported disappointing results reflecting a downturn in the semiconductor market that has seen margins fall for more than a year. However, industry executives expect a gradual rebound starting in 2024, especially as the development of artificial intelligence accelerates and more services that utilize new chip technology emerge.

The storage vendors, led by Samsung and SK Hynix, are focusing their efforts on HBM. there is also recent news that Samsung Electronics will significantly increase its HBM production capacity, with plans to increase HBM monthly capacity to 150,000 to 170,000 units by the fourth quarter of this year. samsung electronics U.S. DS division vice president Han Jin-man disclosed that "this year, our HBM CAPEX has increased by more than 2.5 times and is expected to maintain this level next year."