Hynix Q4 and Full Year 2022 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 Q4, Hynix DRAM bit supply was flat (previous three quarters were down mid-single digits %, up 10% and down high-single digit %.) In NAND in Q4, bit supply grew high single digits % (last three quarters this was down low teens %, up high single digits % and up high teens %.) For the first time since I’ve been following Hynix’s quarterly results – several years now – they did not include DRAM and NAND average selling price change quarter over quarter in their investor presentation. They may believe this is competitively sensitive, but I suspect the true reason is the declines were so severe.

Overall company revenue was down 30% sequentially (down 20% in Q3, rose 14% in Q2). Gross margin was 3.0% in the quarter and operating margin was negative 22.0%. In two quarters, gross margin plunged from 46% to 3% and operating margin dropped from 30% to minus 22%, a staggering 5200 basis point decline.

For 2023, the company is forecasting DRAM demand bit growth to be up low-teens % year-over-year. In NAND they expect demand bit growth to be up low 20% year-over-year. PC units will be negative in 2023 but content of both types of memory will rise. Mobile phone demand is expected to 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 consumption.

Hynix reiterated they will reduce their capital expenditures in 2023 by more than 50% compared to 2022. They reduced wafer starts of legacy and low margin products in the fourth quarter of 2022. Wafer output in DRAM/NAND (they didn’t say both, they said combined wafer output) will decline in 2023 compared to 2022. Technology transitions will slow enough in DRAM in 2023 that year-over-year bit growth will be negative. Bit growth in NAND in 2023 will be “limited.”

In the first quarter of 2023, Hynix’s DRAM bit growth will be negative by double-digit %. In NAND, including Solidigm, they will decrease bit shipments by high-single digits % sequentially. While not stated explicitly, this implies the bit output reductions are coming from reduced wafer starts rather than from holding inventory, though that is not certain.

Analyst Call

Here are highlights from the earnings conference call

Prepared Remarks:

  • Memory prices (didn’t specify between NAND and DRAM, so I think this applies to both) have declined more than 50% from peak levels
  • Server demand for DRAM in 2023 is expected to grow high-teens percent year-over-year while server demand for NAND will increase high-30s percent
  • Technology migration will slow to help reduce future supply growth
  • They indirectly said they hope for an upturn in memory in 2024 with supply and demand coming into balance in 2023

Analyst Q&A:

  • We used to believe the memory industry would be profitable through the cycle. Is this not true anymore, given the severity of this downturn? The 2018-19 downturn was a function of memory supply-side volatility. The present downturn is a broader downcycle with the additional factors of macroeconomic slowness and geopolitical uncertainty. This downturn has been severe because of both high supply growth and a broad reduction in demand.
  • Their 1-alpha node has a single EUV layer. Subsequent nodes will have more EUV layers though the company didn’t say how many would be added with each node.
  • Customers continue to draw down their inventories of memory. This has reduced demand below end-consumption level.
  • The company took a large write-down on the value of the Solidigm assets because of the weakness in the NAND market, including writing down the goodwill associated with the purchase. Intel sold this business at the right time.
  • Customer inventory levels are at or near those seen during the 2019 downturn. Combined with supplier levels, total memory inventories are now at record highs
  • The company is not planning any changes to their shareholder cash return policies, nor do they plan to issue more stock to raise cash
  • A large inventory write-down was taking during the quarter. Both Samsung and Hynix did this during the quarter while Micron did not. Since Micron has a similar cost structure to Hynix and higher costs than Samsung, I think the reason for this must be a difference in accounting practices between South Korea and the U.S.


Encouraging from this call for Micron investors is that Hynix is taking action such that their DRAM and NAND bit growth in the first quarter of 2023 will be negative. I don’t recall seeing this in more than a decade. Normally, companies lower output growth, but it is still positive. Hynix didn’t provide ASP information this quarter, which is disappointing as this is the most important data from these calls. Gross margin was negative in the quarter, surprising given their cost structure is similar to Micron’s. I think the reason for this is they reported on a later period than Micron’s most recent quarter. There may be some accounting differences on inventory in there and certainly some mix variation from Micron. These details really don’t matter to the overall point; the memory market for both DRAM and NAND is terrible. Hynix is doing their part, reducing output and capital expenditures. They said the market may turn later in 2023 leading to an upturn in 2024, but nobody knows anything.

-S. Hughes (cyclical long MU)

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