SK Hynix is expanding long-term supply agreements (LTAs) with global big tech companies to secure long-term demand in the AI memory semiconductor market. The strategy aims to enhance predictability in production and profitability by securing stable demand visibility beyond short-term performance. With full-scale shipments of HBM4 (6th-generation high-bandwidth memory) and next-generation DRAM expected in the second half, record-breaking performance is anticipated to continue.
SK Hynix announced on the 29th that its revenue and operating profit for the second quarter totaled 79.3187 trillion won and 60.5426 trillion won, respectively. Quarterly operating profit reached a record high for five consecutive quarters. Factors such as the sale of investment assets from Kioxia (formerly Toshiba Memory), valuation gains, and favorable exchange rates contributed to net profit reaching 93.9226 trillion won.
Although revenue and operating profit did not meet the market's elevated expectations (consensus estimate), they remained within a reasonable range of recent industry forecasts. Park Jun-deok, head of DRAM marketing, stated, "The timing for expanding shipments of some high-value-added products has been pushed to the second half, and portfolio composition affected overall ASP (average selling price). However, performance improvement will be further strengthened in the second half."
SK Hynix expects full-scale shipments of HBM4, 10-nanometer 6th-generation (1c) DRAM, and SOCAMM2 in the second half. It is anticipated that high-value-added 321-layer NAND flash will account for half of domestic production capacity by year-end. The company also indicated that negotiations for HBM supply next year are progressing smoothly.
Expanding LTAs is a core strategy to prepare for long-term growth in the AI memory market. Song Hyun-jong, president of SK Hynix, stated during the earnings announcement, "We have concluded LTA negotiations with over 10 customers, including key clients so far, and are continuing discussions with major industry customers."
The contracting parties reportedly include major global big tech companies such as NVIDIA and Microsoft. Recently, SK Group signed a letter of intent (LOI) with NVIDIA to build AI infrastructure worth more than 500 billion dollars. Park explained, "We have secured a stable profitability foundation centered on HBM, and long-term cooperation with key AI customers including NVIDIA supports this."
SK Hynix's LTAs typically span five years but go beyond merely extending contract durations. While contract terms vary by customer and product, prices are not fixed; instead, they are designed to reflect market fluctuations. This means if memory prices rise in the future, such increases can be incorporated into contract prices.
Conditions supporting contract fulfillment, including deposits, were also included alongside long-term purchase commitments. These measures strengthen customers' actual purchase obligations and enhance visibility of medium-to-long-term demand. Park noted, "This simultaneously improves downside stability for performance while allowing the company to leverage additional demand and growth opportunities when market conditions are favorable."
The market views LTA expansion as one factor limiting ASP increases. Since long-term contract volumes do not immediately reflect recent sharp DRAM price hikes, some short-term price gains may be sacrificed. However, analysts believe the positive effect of securing long-term demand and profitability outweighs this drawback.
SK Hynix plans to expand production capacity based on the demand visibility secured through LTAs. It aims to develop Icheon and Yongin in Gyeonggi Province as key production hubs for next-generation DRAM and AI memory, while focusing on strengthening NAND and advanced packaging capabilities at its Cheongju facility in North Chungcheong Province. Equipment investment this year is expected to reach the high 40 trillion won range.
SK Hynix forecasts continued growth in memory demand across the entire AI ecosystem. As AI services evolve into agent forms that perform complex tasks on behalf of users, demand is expanding not only for HBM but also for server DRAM and enterprise SSDs.
Song (President) stated, "DRAM and NAND demand this year will increase by mid-20% and late 10%, respectively, under constrained supply conditions. If supply constraints ease and latent demand is met, the market's growth potential could expand further."
SK Hynix also anticipates robust medium-to-long-term investment in AI infrastructure by major CSPs (cloud service providers). This is because AI service competitiveness directly ties to core businesses of big tech companies such as search, advertising, cloud computing, and software. The emergence of high-efficiency AI models is expected to lower usage costs and entry barriers for AI services, thereby increasing overall usage volume and memory demand.
Additionally, the direction of shareholder returns is being reviewed from multiple angles. SK Hynix stated that due to regulatory and procedural constraints related to ADR (American Depositary Receipt) offerings, it is difficult to disclose new important information such as specific shareholder return plans at this time.
Song (President) added, "Given the significantly strengthened cash generation capability, we will be able to meaningfully expand shareholder returns while achieving investment goals for future growth and financial soundness targets. Specific plans will be communicated with the market once finalized."
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