Hynix, surpassing Samsung for the first time?

Latest update time：2024-10-27

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SK Hynix's annual operating profit is likely to surpass Samsung Electronics Semiconductor.

Samsung Electronics' market capitalization accounted for 15.85% of the total value of stocks listed on the Korea Stock Price Index (KOSPI) market, or 333.7 trillion won ($240 billion), as of October 25. SK Hynix's share of the KOSPI market reached 6.95%, or 146.3 trillion won.

The market capitalization gap between the two chipmakers is 8.9%, the smallest in 13 years and three months since the gap of 8.84% in 2011.

Samsung Electronics shares fell on lower-than-expected third-quarter earnings results and delays in quality test approval for supplying high-bandwidth memory (HBM) chips to U.S. artificial intelligence chip giant Nvidia.

In contrast, SK Hynix shares continued to rise on Nvidia’s strong third-quarter results, as the HBM supply agreement went smoothly.

What is more noteworthy is that SK Hynix's annual operating profit is likely to surpass Samsung Electronics Semiconductor. According to industry insiders on the 27th, SK Hynix recorded a comprehensive operating profit of 7.03 trillion won in the third quarter of this year, setting a new quarterly performance record. This figure far exceeds the market's estimate of 4 trillion won in operating profit for Samsung Electronics' semiconductor device solutions (DS) department in the third quarter.

SK Hynix achieved good results, with the increase in sales mainly concentrated on high value-added products such as HBM and enterprise solid-state drives (eSSDs), which have seen a surge in demand due to the artificial intelligence boom.

On the other hand, Samsung Electronics' results were weaker than expected due to the fact that most conventional (general-purpose) memory is experiencing a slowdown in demand, while HBM accounts for a smaller proportion, and the foundry (semiconductor consignment production) time extension deficit.

Judging from the years in which both parties have achieved profitability, SK Hynix's annual operating profit this year is very likely to exceed that of Samsung Electronics' DS division for the first time.

It was not until the third quarter of this year that SK Hynix's performance surpassed Samsung Electronics. SK Hynix's cumulative operating profit from the first to third quarters was 15.3845 trillion won. Samsung Electronics' DS division had an operating profit of 8.36 trillion won in the first half of the year. If the third quarter's operating profit meets market expectations, the cumulative operating profit from the first to third quarters will be about 12 trillion won.

Samsung Electronics has lost its leading position in the HBM field and is in relative trouble due to the polarization trend of semiconductor demand focusing on artificial intelligence and stagnant demand for existing IT such as smartphones and PCs.

As the foundry has been unable to get rid of the deficit due to sluggish orders and low operating rate, the gap with the world's number one foundry company, Taiwan's TSMC, has further widened.

"A big change has already begun as HBM becomes a market topic along with AI processors in 2023," said Lee Seung-woo, head of Eugene Investment and Securities Research Center, adding that "SK Hynix's record is much higher than Samsung Electronics Semiconductor's profit margin."

Meanwhile, individual investors bought 4.4 trillion won worth of Samsung Electronics shares in the stock market this month. In contrast, foreigners made large net sales of Samsung Electronics and net purchases of SK Hynix worth about 800 billion won.

Hynix, getting stronger

The "early semiconductor winter" theory was proposed due to concerns about continued demand for memory semiconductors, but SK Hynix has warmed up in the AI semiconductor boom. SK Hynix has become the absolute leader in the HBM market and is expected to temporarily consolidate its monopoly system, eliminating concerns about oversupply and challenges from competitors.

SK Hynix, which recorded its highest quarterly performance ever, showed more firm confidence in its HBM business. SK Hynix announced the start of a "new game" in its earnings call on the 24th. In fact, analysts believe that when the profit maximization strategy of a company that dominates the market, the competitiveness of developing high-quality products, and further enhanced financial strength are combined, a virtuous cycle has begun.

Samsung Securities said, "The necessary conditions for success are now changing from 'cost control' to 'time control.'" "For SK Hynix, timely supply of next-generation products that match the speed of technology is a key factor in the success of semiconductors in the AI era. He explained that this is a difficult task, but it is an accurate judgment of the situation." Supplying products on time, even if more manpower and funds are invested, is the most profitable way to cope with the rapidly changing artificial intelligence technology. SK Hynix knows this well and is practicing it well. SK Hynix said, "HBM3E (5th generation) shipments have exceeded HBM3 (4th generation) in the third quarter, and HBM3E 12-layer products will begin to be shipped in the fourth quarter. The proportion of 12-layer products will increase to more than half of the total HBM3E shipments in the first half of next year. "This will happen," he predicted.

While rival Samsung Electronics has yet to receive Nvidia's HBM3E certification, SK Hynix plans to further solidify its dominance in the HBM market by delivering next-generation products as planned. Bank of America predicts that "SK Hynix's HBM market share will exceed 50% by 2024-2025."

Some have suggested there is a possibility of oversupply, saying that large global technology companies that have invested heavily in HBM may reduce their AI investments, while Samsung Electronics may significantly increase production after obtaining NVIDIA certification, thereby increasing market supply. SK Hynix and market experts have refuted these concerns.

SK Hynix predicted in a recent conference call that "unlike general DRAM, HBM has a long-term contract structure, and most of the volume and price discussions with customers for 2025 have been completed," adding that "HBM demand will increase beyond expectations next year." AI technology is moving beyond simply creating learning patterns or making predictions based on past data to creating various possibilities and making decisions based on reasoning, which requires more computing power. In this context, it is "too early" to worry about a slowdown in HBM demand.

Noh Geun-chang, a researcher at Hyundai Motor Securities, said that “the expansion of AI data center investment will continue after 2025,” adding that “it is too early to discuss the maturity of AI infrastructure investment.” Lee Ui-jin, a researcher at Heungkuk Securities, also said that “there will be no oversupply of HBM next year,” adding that “fleet HBM shipments will be further restricted as the market shifts to HBM3E Grade 12.”

Mizuho Securities predicts that "even if Samsung Electronics successfully passes quality certification (HBM for NVIDIA), it will remain a small supplier to NVIDIA until at least 2025."

Next year's market will be won by the next-generation product HBM4. The market also expects SK Hynix to take the lead in HBM4. Kim Gwang-jin, a researcher at Hanwha Investment Securities, said: "SK Hynix's leadership in the HBM market will continue to stand out," adding, "Just as it almost monopolized the HBM3E 8-speed market this year, it will maintain its dominance in the 12-speed market, which will officially start in the fourth quarter." He said, "SK Hynix is expected to respond to HBM4 customer samples the fastest."

There are also voices saying that SK Hynix must be fully prepared for "post-HBM". Although we have focused our business strategy on HBM in order to cope with a large number of orders, our suggestion is that we should not neglect to prepare for other next-generation semiconductors. The market is paying attention to PIM (a technology that solves data movement congestion problems in the fields of artificial intelligence and big data processing by adding computing functions to memory semiconductors) and CXL (next-generation high-performance computing interface) as the next-generation AI memory that will succeed HBM.

END

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