Hynix Q4 and FY21 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.

In the fourth quarter, Hynix grew DRAM bits mid-to-high single digits % Q/Q, following last quarter when DRAM bits were down low-single-digit %. Thus, the last two quarters Hynix has grown DRAM bits a total of about 5%. DRAM ASPs in the quarter declined mid-single-digits %. These prices rose high-single-digits last quarter. In NAND in Q4, bits grew low teens % sequentially and ASPs declined around 10%. The company cited global supply chain issues and softening mobile demand in China for the pricing weakness in both memory types. Overall company revenue increased 5% in the fourth quarter over the third. Gross margin was flat, so Hynix was able to reduce bit cost as fast as ASPs declined.

Looking forward to the full fiscal year 2022, the company forecasts DRAM bit demand to grow 18% Y/Y and NAND bit demand growth around 30% Y/Y. The server segment is the driver behind 2022 bit demand growth in both memory types. PCs will be below the overall average for DRAM bit growth while NAND for PC SSDs will be above 30%. Hynix plans to match the market in DRAM bit supply growth in 2022, with Q1 forecasted to see a mid-to-high single digit % decrease Q/Q. Q1-22 demand may be soft because of seasonality and they said they would “respond more flexibly” by replenishing their low inventory levels. They said they will manage inventory to maximize profitability, implying they will hold inventory rather than take lower prices for DRAM. This will mark a three-quarter period where Hynix significantly undergrows the overall DRAM market. As they have been saying they plan to grow overall DRAM bits in line with the market, they must be planning to make up for it later in 2022. The company called out they will “continue profitability-oriented management.” NAND is a different story. Repeating what Hynix has said previously, they plan to outgrow the NAND market in 2022, with Q1 bits up 20% Q/Q, including those acquired from Intel. They plan to grow their bit supply 60% Y/Y, almost double their forecast for bit demand in the NAND market of up 30%.

During the conference call, Hynix’s management said this:

Our CapEx in 2021 was KRW13.4 trillion. This will likely increase this year, mostly due to large investments in construction and infrastructure for future growth, such as purchase of Yongin land site and the R&D center in the U.S. On the other hand, equipment spending is planned to be similar to last year and will remain below the annual depreciation and amortization cost. As equipment lead time keeps getting longer, we are striving to minimize the impact of scheduled equipment deliveries. But given that disruption cannot be completely ruled out, we are looking into a number of options to address the issue. There will be additional CapEx requirement for Solidigm but the impact will be limited, considering its own cash generation capability.

So the question is pertaining to the CapEx intensity and also the concerns related to this coming from the market which is about the increase in the unit CapEx per bit. Now, of course, so that that has been an area of interest and concern for the company as well. Now for both DRAM and NAND, what we have been seeing at least up until the early 2010s is that, thanks to tech migration, there was almost automatic cost reduction that was made possible almost every year. So simply from tech migration, we were able to reduce the cost. But then now in the past few years, that has been made much more difficult. So for DRAM, we see that tech migration does not automatically lead to cost reduction, at least, there are now limitations to that. And also for the NAND technology, the 3D stacking is becoming more and more difficult. So that means that, just through tech migration, it is no longer so easy to reduce the cost or for example, like [indiscernible]. And as a result, so what we have been doing is to increase CapEx in order to have capacity to ramp up, in order to meet the demand coming from the market which has resulted in increasing CapEx so far.

This is noteworthy because the bending of Moore’s Law being seen today with scaling is increasing the capital intensity behind bit growth in memory. The same amount of capex today leads to less bit growth than it did in previous years. It is important to remember this when comparing capex numbers at memory makers and WFE suppliers. The capex in previous peak years, the most recent being in 2018, if spent today, won’t lead to the same level of supply growth.


Gross margin was flat this quarter compared to last, with revenue up and pricing in both DRAM and NAND down. ASPs for both memory types rose in the previous quarter, so this is a reversal. It is not a surprise because the spot market softened between April and November and is a leading indicator of the contract pricing where most of Hynix’s bits are sold. For the full year 2022, Hynix sees industry-wide DRAM bit demand to grow high-teens % compared to 2021. NAND bit demand will increase around 30% year-over-year. These are normal growth rates, following a surge in 2021 that saw DRAM demand up mid-teens % and NAND up around 40%. Hynix said they will prioritize profitability in DRAM and will hold inventory as needed to do so. In NAND they said again they plan to outgrow the market. I was surprised to hear Hynix is not even forecasting a replacement level of equipment capex. While this is a good indication for market balance, it may have something to do with accounting treatment of depreciation. Overall, this was a pretty good report for Micron shareholders. The pricing decline in DRAM was small and Hynix strongly signaled their intent to not oversupply the DRAM market. As they said last quarter, NAND is different as Hynix is set on causing oversupply to gain market share. The company also made similar commentary to Micron and others that component supply constraints are reducing demand, and that this would ease as 2022 passes.

-S. Hughes (long MU)

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