Hynix Q1 2023 Earnings


I review the financial reports from the other significant memory manufacturers to learn more about the state of the DRAM and NAND markets, not to analyze the companies as investments. Hynix is Micron’s sister company. It is similar in size and is split 70-30 between DRAM and NAND. The Korean company has typically been more profitable that Micron at a given point in the cycle, but the gap has closed in recent years.

Investor Presentation

In Q1 of 2023, Hynix DRAM bit shipments were down around 20% (previous four quarters were flat, down mid-single digits %, up 10% and down high-single digit %.) In NAND in Q1, bit shipments declined mid-teens % (previous four quarters this was up high single digits %, down low teens %, up high single digits % and up high teens %.) After not including ASPs last quarter, the company gave pricing changes for this period. In DRAM ASPs dropped high-teens % sequentially and NAND declined around 10% quarter-over-quarter.

Overall company revenue was down 34% sequentially (down 30% in Q4, down 20% in Q3, rose 14% in Q2). Gross margin was negative 32.0% in the quarter (was 3.0% in Q4) and operating margin was negative 66.9% (was negative 22.0% in Q4). In three quarters, gross margin plunged from 46% to negative 32% and operating margin dropped from 30% to minus 67%, a staggering 9700 basis point decline.

For 2023, the company is forecasting DRAM demand bit growth to be up mid-to-high single digits %. Their view of 2023 has deteriorated in three months. Last quarter they said 2023 would see low-teens % year-over-year DRAM bit demand growth. Their view of the NAND market in 2023 also moderated. The company now expects NAND bit demand growth to increase mid-to-high teens % in 2023 vs. a prior view of up low 20% year-over-year. PC units declined in 2022 and will drop again in 2023. As stated last quarter, they believe mobile phone demand will recover in the second half of the year as inventories are depleted and China opens back up. Server demand will slow in 2023 because of lower corporate IT budgets and inventory adjustments by cloud service providers. They said something similar last quarter.

The company’s DRAM supply will grow double digits % quarter over quarter in Q2. This is a large sequential rise in the face of a soft market. They will also grow their NAND bits by double digit % in Q2 over Q1. They restated their plan to reduce capital expenditures in 2023 by more than 50% over 2022. The reduced wafer starts they began making in Q4 of 2022 are being seen in reduced fab output in Q1 and this will continue as 2023 progresses. Their bit growth forecast in Q2 is higher than I expected given the reduction in wafer starts in Q1. Assuming their wafer start reductions are getting larger now than they were in late 2022, expect bit supply growth to shrink or even go negative as 2023 continues.

Analyst Call

Here are highlights from the earnings conference call:

Prepared Remarks:

  • · DRAM and NAND shipments fell significantly in the second quarter. Prices continue to drop across all applications.
  • · DRAM pricing fell at a lower rate than in the previous quarter.
  • · Company NAND pricing declined less than the overall NAND market because of conservatism in their sales approach.
  • · Hynix added more debt in the quarter. Prepared remarks also indicated they took an inventory write-down in the quarter, though the comment was fleeting.
  • · They believe memory inventory has peaked and is now declining.
  • · Demand for electronics is still weak but low memory pricing is spurring content growth.
  • · Memory pricing has fallen by more than 60% from peak levels.
  • · The company believes the memory market will move towards balance in the second half of 2023. They also said that production cuts will lead to an upturn that will be strong, a reflection of the severity of the downturn the industry is in.
  • · Server end demand is weakening this year from IT budget cuts, but the conversion from DDR4 to DDR5 will spur demand for memory, along with reduced inventory levels.
  • · Memory demand in 2023 is expected to grow mid-to-high single digits % for DRAM and mid-to-high teens for NAND.
  • · Bit demand growth for both DRAM and NAND in the second quarter is expected to grow by double digits, more than offsetting the weakness seen in the first quarter. They expect meaningful memory growth in the second quarter.
  • · The company again revised down their forecast for DRAM demand in 2023 compared to what they thought ninety days ago. They reiterated their reduced capex plan for the year, as stated previously (down more than 50% year-over-year)
  • · The effects of prior reductions in wafer starts have started to be seen in Q1. They are now also reducing wafer starts of products that have high inventory levels.
  • · They expect inventory levels to reach a “more normalized level” in 2023. They expect any inventory write-down in the second quarter to be small as they expect inventory levels to peak in that quarter and for ASP declines to moderate.

Analyst Q&A:

  • · In 2023, demand from all memory market segments will decline from 2022 levels.
  • · They believe the memory market has bottomed. Company inventory will peak in the second quarter and “gradually” decline in the back half of 2023.
  • · Data center and other cloud customer still have elevated inventory. They believe some of this is buffer stock which will be held in anticipation of lower memory supply in 2024. Consumer-facing customers don’t plan that way and may provide a boost to demand once the market turns.
  • · Customer inventories are believed to be “close to peak.”
  • · DDR5 demand is relatively strong now. DDR4 demand, because this interface type comprises most current inventory, continues to be weak.
  • · Current industry inventory levels are unprecedented in recent history. Hynix doesn’t expect a dramatic increase in ASPs in Q2. Market conditions are expected to improve starting in Q3. This is the first call I have heard saying the market will get better in the third quarter, not just sometime in the second half of 2023.
  • · Server shipments for memory could comprise 40% of total memory consumption over the next five years. This was followed by the comment that AI demand within this segment could see a 30% CAGR. I am not so sanguine on how strong AI’s effect will be on memory growth.
  • · Following the debt added recently to Hynix’s balance sheet, interest expense is expected to double going forward.
  • · In the first quarter the company recognized “close to” a 1T won (~$750M) inventory loss.


Hynix went as far as to predict that the memory market will bottom out in the third quarter. Other companies have only said they believe things will improve in the second half of 2023. Even then, none call for anything more than a gradual improvement. Hynix says ASPs are now down 60% from their peak. They believe inventories in the overall memory supply chain crested in the second quarter and are now coming down. Their supply reductions have flowed through to wafer output. Those reductions will grow in size as 2023 continues. Management also reminded analysts that the more severe the downturn, the sharper the upturn that follows. Hynix’s debt has grown by 50% in the last year. Inventory has grown by 80% over the same time, even with two large write-downs. All three major DRAM players have now announced output reductions. Hynix and Micron have also taken capital expenditures down in the current year by more than 50%. There is a long lag between these changes and pricing. The leading indicators for a market reversal are now visible; inventory peaking. With the amount of inventory in the supply chain, I believe the delay between that marker and pricing improving will be a few months. I do believe the coming upturn will be clearly underway by the Fall of 2023 and that it will be strong in 2024. But as I say often, nobody knows anything.

-S. Hughes (cyclical long MU)

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