SK Hynix is transitioning to a business model based on long-term supply contracts amid unprecedented demand in the artificial intelligence (AI) memory market. The company plans to focus on its sixth-generation high-bandwidth memory (HBM4) while expanding long-term agreements with global clients, projecting that nearly all DRAM and HBM products will be sold out by 2029. Following a record performance in the third quarter, SK Hynix has established a stable growth foundation by securing medium- to long-term demand.
According to SK Hynix, shipments and revenue from HBM4 are expected to exceed those of its previous flagship product, HBM3E, in the fourth quarter. The company has ramped up HBM4 production and shipments since the third quarter and has completed negotiations with major clients regarding HBM supply volumes and prices for next year. Plans are in place to maximize production capacity at the Cheongju M15X plant by the end of the year to meet rising demand.
The yield for HBM4 has surpassed initial targets. During a conference call on the day of the earnings announcement, SK Hynix stated, "Both the front-end and back-end yields for HBM4 are among the highest in the industry," adding that it has adjusted its targets upward due to better-than-expected yields. The company anticipates significant increases in HBM revenue and profits next year, driven by expanded sales and improved yields.
SK Hynix has also established a solid foundation for stable demand through long-term contracts. The company noted, "Considering the secured long-term supply contract (LTA) volumes and ongoing discussions with clients, nearly all DRAM and HBM products will be sold out over the next three years until 2029."
Currently, SK Hynix has signed long-term supply contracts with 14 major clients, including global cloud service providers (CSPs). The confirmed contract volumes account for over 50% of total production capacity for 2027 and 2028. The contracts typically span five years, with discussions for extensions already underway with some clients.
Demand for HBM exceeds available supply by a factor of two. While some clients are adjusting the number of layers for specific products, the overall demand and supply plans remain unaffected, according to the company. SK Hynix expects to maintain profitability that surpasses previous memory boom periods through an increased share of HBM4 and improved cost competitiveness.
The memory supply shortage is projected to continue until 2030. Investments in AI data centers are expanding not only among global tech giants but also among regular businesses and sovereign nations, yet establishing new production facilities and transitioning to advanced processes will take considerable time. The company forecasts a demand growth rate of mid-20% for DRAM and high-10% for NAND next year, considering supply conditions.
Investment in production facilities will also increase. Next year, SK Hynix plans to prepare for mass production at the first facility in the Yongin semiconductor cluster and will begin investing in equipment for transitioning to advanced processes. The investment scale is expected to rise significantly compared to the previous year. However, the company intends to gradually open clean rooms and bring in equipment in line with customer demand, separate from factory construction.
Additionally, SK Hynix is accelerating the development of next-generation technologies. After completing sample supply for HBM4E in the second quarter, the company is conducting customer evaluations and developing customized HBM tailored to individual AI systems. In DRAM, it is preparing 4F² (four F squared) structures and 3D DRAM technology. In the NAND sector, it is pursuing the development of high-bandwidth flash (HBF) for AI inference in the long term.
Kwak No-jung, CEO of SK Hynix, emphasized during the conference call, "While we have achieved record performance for six consecutive quarters, it is noteworthy that the business environment supporting these results is changing. The trust built through our technological competitiveness is leading to long-term contracts, enhancing visibility for medium- to long-term demand and establishing conditions for stable profitability."
* This article has been translated by AI.
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