SK Hynix Earnings: Investment Plan Shows Confidence in Medium-Term HBM Demand

No-moat SK Hynix’s first-quarter results improved significantly as memory prices continued to recover. Revenue increased 9.9% sequentially and more than doubled from the previous year, and gross margin and operating margin improved from 19.7% and 3.1%, respectively, to 38.6% and 23.2%. The company explained that the average selling price, or ASP, for DRAM increased by more than 20% and NAND by more than 30% sequentially. This was driven by 1) an improving product mix due to the robust demand for high-end memories for artificial intelligence, or AI, servers; 2) low seasonality for conventional memory; and 3) a tightening supply/demand balance as memory suppliers reduced capacity utilization. However, despite the strong results, the reported numbers were largely in line with our expectations, as Micron has already reported high-teens ASP growth for DRAM and over 30% ASP growth for NAND in the February quarter. Gross margin and operating margin were above our numbers and the PitchBook consensus, but the difference was due to the reversal of inventory valuation loss.