Hynix Q1-22 Financial Results


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 their lead slide, the company called out increasing uncertainties in supply and demand; rising interest rates, inflation, geopolitical risks, prolonged supply chain issues, challenges in procuring equipment, limited supply growth. All these factors lead to Hynix being flexible in how they manage supply with their goal being to secure profitability. The overall message here is Hynix will manage supply growth and inventory to keep the memory market healthy.

In the first quarter of 2022, Hynix DRAM bit supply declined high single digit % Q/Q, following last quarter when DRAM bits grew mid-to-high single digits %. Thus, the last three quarters Hynix’s DRAM bits have shrunk approximately 4%. They continue to say they will match the DRAM market in supply growth in 2022, so expect higher supply numbers in the rest of the year. DRAM ASPs in the quarter declined low-to-mid single digits % this quarter. These prices declined mid-single-digits % last quarter. That is two consecutive quarters of DRAM price declines following a quarter of rising ASPs. In NAND in Q1 of 2022, bit supply grew high teens % sequentially and ASPs grew low single digits. The company cited seasonal weakness and softening mobile demand in China in NAND. They said demand is strong for computing products in DRAM. Overall company revenue decreased 2% sequentially, with gross margin sinking to 44%, from 49% in the previous quarter. This is a larger compression of margin that I expected to see based on how pricing changed. That could be the result of mix changes, inventory mix, bit volumes reducing in DRAM, etc.

Looking forward to the full fiscal year 2022, the company forecasts DRAM bit demand to grow high teens percent Y/Y and NAND bit demand growth around 30% Y/Y. This is unchanged from their outlook a quarter ago. Data Center demand will be strong with the launch of DDR5 in the second half of the year increasing demand for high-performance servers. PC shipments will decline slightly Y/Y, hindered by component shortages and lockdowns in China. Demand for corporate and gaming PCs is “solid” while consumer PC demand is “weaker.” Mobile demand growth continues to be weak because of China. They see “gradual demand recovery” driven by high end models in the second half of the year. For Hynix, they continue to say they will match DRAM bit growth for the full year and will outgrow the market in NAND. In the second quarter, DRAM bit growth will be mid-teens % Q/Q. In NAND, bit growth will be more than 20% Q/Q. These are both quite large bit growth numbers for a single quarter. In DRAM, they are making up for negative bit growth in the last three quarters. In NAND, the market seems able to continue to absorb this high bit growth from Hynix.


Uncertainty about the future of the economy is high and this weighs heavily on companies like Hynix, who’s profitability depends on supply and demand of memory. DRAM pricing declined less than anticipated for Hynix while NAND prices increased, helped by the lost production at Kioxia. Hynix continues to say they will match the market in bit growth for 2022 and will outgrow the NAND market. The key message from the company is they will be flexible in supply in order to protect profitability. Said another way, they will reduce the rate of supply growth and/or hold inventory rather than chase pricing down. Softening consumer demand, especially in China, is hurting pricing for memory types that go into PCs and mobile phones. The server market, which is the largest memory-consuming segment, continues to be strong. Memory makers are hoping the second half of 2022 will see seasonal demand strengthen for consumer products, reduction of supply chain restrictions, and higher-core-count processors in servers drive higher memory demand. The trend down in DRAM pricing for two quarters is concerning for Micron investors. COVID has made this memory cycle different from all those in the past. Hopefully that continues and two quarters of DRAM price softness are followed by rising ASPs in the back half of 2022.

-S. Hughes (long MU)

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