Nvidia supplier SK Hynix offset first-quarter losses on AI demand

South Korean memory chip maker SK Hynix reported on Thursday a net profit of 1.92 trillion South Korean won ($1.39 billion) in the first quarter, loss recovery from 2.58 trillion won recorded in the same period a year ago.

This was the first positive earnings recorded since the third quarter of 2022, LSEG data showed. SK Hynix posted five straight quarters of net losses as the memory chip market slumped.

First-quarter revenue totaled 12.43 trillion won, a 144% increase from a year ago. That’s the highest revenue on record since the second quarter of 2022, according to LSEG data.

SK Hynix attributed the strong performance to “increasing sales of AI server products supported by leadership in AI memory technology, including high-bandwidth memory,” as well as efforts to increase profitability.

SK Hynix is ​​the world’s second largest memory chip maker after Samsung Electronics and supplies high-bandwidth memory chips serving AI chipsets to companies such as Nvidia.

Explosive demand for AI chipsets has boosted the high-end memory chip market, benefiting players such as SK Hynix and Samsung Electronics immensely.

Large language models like ChatGPT—which led to the sudden adoption of AI—require lots of high-performance memory chips because such chips allow these models to remember details of past conversations and user preferences to generate human responses.

To meet demand for AI memory, the company said it plans to increase supply of HBM3E, the latest generation of high-bandwidth memory for AI. SK Hynix said it will also introduce 32GB Double Data Rate 5 products this year to strengthen its leadership in the high-capacity server DRAM market.

“We will continue to work to improve our financial performance by providing the best performing products in the industry at the right time and maintaining a commitment to profitability first,” said Chief Financial Officer Kim Woohyun.

The firm predicts that the overall memory market will grow steadily in the coming months on the back of increasing demand for AI memory, while the conventional DRAM memory market starts to recover from the second half of 2024.

Pandemic-induced demand for consumer electronics has led companies to stockpile memory chips. But macroeconomic uncertainties such as inflation have caused consumers to cut back on purchases of such consumer goods, reducing demand and prices for memory chips.

To deal with excess inventory, companies such as SK Hynix are reducing production of their memory chips.

Shares of SK Hynix fell more than 4% on Thursday morning, even though they have jumped more than 100% in the past one year.

The company said so on Wednesday plans to build a new factory in South Koreawith an expected completion date set for November 2025, to ramp up next-generation DRAM production, including HBM, to capture growing demand for AI chips.

The total investment will amount to more than 20 trillion won in the long term, SK Hynix said.

SK Hynix also partnered with TSMC, the world’s largest contract chip manufacturer, to build high-bandwidth 4 memory chips and next-generation packaging technology. Mass production of the HBM4 chips is expected to begin in 2026.

SK Hynix will benefit from TSMC’s leading processes, according to an April 19 statement.