Earnings Call: Q3 2018

Oct 25, 2018

Before starting the conference call, allow me to introduce the executives present here with me today. First, Executive Vice President in charge of corporate support and CFO, Lee Myung-young. Vice President Kim Seok, in charge of the DRAM Marketing Group, and Vice President Kim Jeong-tae, in charge of the NAND Marketing Group. conference call 발표 내용에 포함된 예측 정보는 거시경제 및 시장 상황 등의 변화에 따라 달라질 수 있으므로 유의하시기 바랍니다. Let me issue a disclaimer that all outlooks presented by the company are subject to change depending on the macroeconomic and market circumstances. 그럼 지금부터 SK hynix 2018년 3분기 경영실적 발표를 시작하도록 하겠습니다. 먼저 이명영 부사장이 실적과 시장 전망 그리고 향후 계획에 대해 설명드리겠습니다. With that, we will now begin SK hynix 2018 third quarter earnings release conference call. Let me now turn over to Executive Vice President Lee Myung-young to present the third quarter earnings and the company's plan and market outlook. 안녕하십니까. 경영지원 조직을 담당하고 있는 이명영입니다. 먼저 SK hynix 2018년 3분기 실적에 대해 설명드리겠습니다. Good morning. This is Lee Myung-young, in charge of SK hynix corporate support. Let me begin with a review of our financial performance in the third quarter of 2018. 당사는 이번 분기에 매출 11조 원, 영업이익 6조 원을 각각 돌파하며 전 분기에 달성하였던 창사 이래 최대 규모의 분기 실적을 경신하였습니다. Third quarter consolidated sales totaled KRW 11 trillion, operating profit KRW 6 trillion, once again, the highest ever performance in a quarter for the company after the previous quarter. 3분기 매출액은 DRAM 가격 상승세가 둔화되고 NAND 가격 하락세가 지속되었지만 출하량 증가가 이어지면서 전분기 대비 10% 증가한 11조 4,170억 원을 기록하였습니다. Despite slower DRAM price increase and continued NAND price fall, bit shipment growth continued, leading to consolidated sales growth of 10% quarter-on-quarter to KRW 11.417 trillion. DRAM의 경우 견조한 수요가 이어진 서버 시장과 계절적 회복세를 보인 중화권 모바일향 시장에 적극 대응하면서 전분기 대비 5%의 출하량 증가를 기록했습니다. 대부분의 제품군에서 가격 상승이 이루어졌으나 상승폭이 둔화되었고, 상대적으로 가격이 낮은 모바일 제품의 판매 비중이 증가하면서 ASP는 전분기 대비 1% 상승하였습니다. DRAM bit shipment rose by 5% quarter-on-quarter. Demand kept up solid growth in the server market, there was seasonal pickup in the Greater China region for mobile products, for which the company responded actively. ASP rose by 1% quarter-on-quarter, rising across most DRAM products, but at a slower pace. There was increase in sales portion of the relatively lower priced mobile products. NAND flash의 경우 72-layer 제품을 중심으로 SSD 시장과 중화권 모바일 고객의 고용량 수요에 대응하면서 전분기 대비 19%의 출하량 증가가 있었습니다. 특히 이번 분기 전체 NAND 매출에서 SSD의 비중은 20% 중반까지 확대되었으며, enterprise SSD 매출은 지난 분기 대비 3배 이상 증가하여 SSD 내에서의 비중도 20% 중반을 기록했습니다. ASP는 공급 증가에 따라 모든 제품군에서 가격 하락세가 지속되면서 전분기 대비 10% 하락하였습니다. For NAND flash, bit shipment rose by 19% quarter-on-quarter. We met demands for high density products from our mobile customers in China and demand for SSD products with 72-layer products. The portion of SSD out of total NAND sales in the quarter rose to mid-20%, while enterprise SSD's portion also reached mid-20% portion of total SSD, more than tripling quarter-on-quarter. ASP fell 10% from the previous quarter, weakening in all product categories as supply grew overall. 한편 MCP는 스마트폰의 메모리 고용량화가 가속되면서 6GB DRAM과 64GB 및 128GB NAND 조합의 MCP 제품 판매량이 빠르게 늘었습니다. 이에 따라 ASP가 상승하여 매출이 전분기 대비 19% 증가하였고, 매출 비중은 22%를 기록하였습니다. For MCP, sales grew 19% from the previous quarter, with its portion out of sales reaching 22%. There was rapid growth in MCP products combining 6GB DRAM with 64GB or 128GB NAND, as smartphone makers continued to increase their content per box, which pushed up the ASP. 매출 증가와 원활한 미세 공정 비중 확대에 따른 원가 절감으로 전 제품군의 이익률이 개선되며, 3분기 영업이익은 전분기 대비 16% 증가한 6조 4,720억 원 영업이익률은 57%를 달성하였습니다. Our operating profit in the third quarter was KRW 6.472 trillion, up 16% quarter-on-quarter following higher sales and cost reduction from smooth migration to finer node. Operating profit margin was 57%. 한편, 3분기 감가상각과 무형자산 상각비는 1조 6,470억원으로 전분기 대비 소폭 증가하였으며, EBITDA는 8조 1,200억원, EBITDA 마진률은 71%를 기록하였습니다. Depreciation and amortization expense for the quarter was KRW 1.647 trillion, up slightly from the previous quarter. EBITDA was KRW 8.12 trillion, representing an EBITDA margin of 71%. 영업 외 항목에서는 기말 환율 하락으로 환산 손실이 발생하여 약 830억원가량의 외화 관련 손실이 발생함에 따라 370억원의 순영업외비용을 기록하였습니다. There was a net non-operating expense of KRW 37 billion. There was foreign currency loss of around KRW 83 billion, mainly foreign currency translation loss from appreciation of the Korean won at quarter end. 세전이익 증가에 따라 3분기 법인세 비용은 1조 7,430억원을 인식하였고, 법인세 차감 후 순이익은 4조 6,920억원, 순이익률은 41%를 기록하였습니다. Corporate tax for the third quarter was KRW 1.743 trillion due to the increase in net profit before corporate tax. Our net profit after corporate tax for the quarter was KRW 4.692 trillion with a net profit margin of 41%. 3분기 말 당사가 보유한 전체 현금성 자산은 2분기 말에 비해 1조 2,700억원 증가한 5조 6,750억원을 기록하였으며, 차입금은 4,380억원 감소한 4조 9,770억원이었습니다. Consolidated cash balance at the end of the third quarter was KRW 5.675 trillion, an increase by approximately KRW 1.27 trillion from the end of the second quarter. Our interest-bearing debt stood at KRW 4.977 trillion, a decrease by KRW 438 billion. 다음으로 시장 전망과 향후 계획에 대해 말씀드리겠습니다. Next, I would like to discuss the company's market outlook and plan. 3분기 DRAM 시장은 IDC향 서버 수요와 중화권 모바일 고객향 수요가 전체 수요를 견인하였으나, 연초에 비해서 주요 고객의 재고는 정상 수준을 회복하였고, DRAM 업체의 공급 확대 노력에 따라 극심했던 공급 부족 상황이 해소되기 시작하였습니다. 반면에 글로벌 무역 갈등이 지속되는 가운데 금리 상승에 따른 신흥시장의 변동성이 커지는 등 수요 불확실성이 확대되었습니다. DRAM market in the third quarter was led by IDC server demand and demand from China mobile customers. However, major customers' inventory levels normalized compared to early this year, while the severe supply shortage has begun to ease following DRAM makers' efforts to meet demand growth through supply. At the same time, the global trade friction continues unabated, while volatility grows in emerging economies after the benchmark rate hike, adding to growing demand uncertainties. 이에 따라 급격한 수요 성장세를 보였던 서버 DRAM 고객은 단기적으로 필수적인 수요를 충족하는 구매 전략을 시행할 것으로 예상됩니다. 그러나 장기적으로 일반 서버에 비해 메모리 탑재량이 50% 이상 더 많은 AI 서버 비중이 확대되고, 5G 네트워크 확산에 따른 엣지 컴퓨팅향 서버 수요도 등장하면서 주요 IDC 업체의 투자는 지속될 것으로 예상되어, 서버 DRAM의 견조한 중장기 성장 흐름에는 변화가 없을 것으로 전망합니다. Given this backdrop, server DRAM customers that showed sharp demand growth are now expected to shift their purchasing strategy to fulfilling short-term essential demand. Server DRAM's robust mid to long-term growth is likely to remain unchanged. This is because major IDCs are expected to keep investing with the growing need for AI servers, which have more than 50% higher memory density and the advent of edge computing servers to keep up with 5G network expansion. 반면 모바일 DRAM 시장은 하이엔드 스마트폰향 판매 강도는 과거에 비해 둔화되었지만, 보수적인 고객 재고 정책으로 인해 이연되었던 수요가 4분기에 현실화되고, 고용량 메모리 탑재 트렌드가 지속됨에 따라 과거에 비해 계절적 수요 변동성은 감소할 것으로 예상됩니다. 특히 최근 트리플 카메라와 3D 센서 등 하이엔드 모델에만 채용되던 기능들이 중저가 모델까지 확산되는 점은 모바일 메모리 용량 증가에 매우 긍정적입니다. In the mobile DRAM market, while high-end smartphone sales have eased, mobile customers' deferred demand from their conservative component inventory policy is expected to materialize in the fourth quarter. Also, with the continuing trend for high mobile DRAM content adoption, seasonal demand volatility is expected to slow. In particular, the spread of high-end model features such as triple cameras and 3D sensors to mid to low-end models is very positive for mobile memory content increase. Aside from this, CPU supply shortage and slowing cryptocurrency demand is expected to have some negative effect on PC DRAM and graphics DRAM demand. We are closely monitoring these market trends. For the NAND market, the mass production of customer-qualified 72-layer and 64-layer products and sales of inventory that rose in the first half has led to price decline. At the same time, adoption of high-density NAND continues in all applications. For SSD, not only the adoption rate, but also the content per box are growing for both PC and server products. SSD adoption in notebooks is likely to near 60% this year, and demand for PC SSD is also expected to keep increasing as SATA is rapidly being replaced by value level PCIe solutions. With higher performance than SATA interface and price competitiveness, value level PCIe solutions content per box is also increasing. The enterprise SSD market has grown centered on the PCIe interface demand, mainly from IDC customers. In the future, market expansion of new applications, as well as the increase in number of suppliers and price decline, is expected to drive continued faster mid to long-term demand growth for enterprise SSD compared to other applications. With price decline from industry supply growth occurring over a short period of time recently, NAND prices have been pushed down to the levels of early 2016 before NAND prices increased. As suppliers still need to work down inventory level that rose in the first half, more price adjustments seem unavoidable. This is expected to gradually trigger elastic growth in demand. Based on these market conditions, our company's bit shipment growth plan for the fourth quarter is up mid-single digit % for DRAM and up low 30% level for NAND. This will help us achieve the targets of low 20% bit shipment growth for DRAM and mid 40% for NAND for the year. For DRAM, we will first improve the technological efficiency of the 1x nano process, for which There has been yield improvement in the third quarter. We will also focus on developing high density, high performance products for which demand is strong and the value add is higher. We will also complete the 1y nano process development and the clean room construction in the Wuxi fab by this year end so that we can start mass production in the first half of next year. NAND flash 역시 72-layer 제품의 비중을 계속 확대해 나가면서 고용량 모바일과 enterprise SSD 시장에서의 당사의 입지를 적극 강화하도록 하겠습니다. 이를 통해 NAND 중 72-layer 제품 비중은 연말 50% 이상으로 확대하고, 3D NAND 비중도 70% 중반까지 끌어올리겠습니다. 아울러 내년 시장에 대비하기 위한 96단의 개발을 연내에 완료할 계획이며, 지난 10월 초에 오픈한 M15 fab은 현재 장비 설치를 진행 중으로 내년 상반기부터 생산에 기여할 수 있도록 준비하고 있습니다. For NAND flash, we will keep increasing the portion of 72-layer products and solidify our position in the high-density mobile and enterprise SSD market. 72-layer products will be increased to over 50% of all NAND production, while the portion of 3D NAND will also be pulled up to mid 70% level. We also plan to complete the development of 96-layer within the year to be ready for next year's market. Equipment installation is underway at the M15 fab, which opened in early October, so that it can contribute to production from the first half of next year. 한편, 당사는 급증하는 대외 불확실성으로 인해 수요 변동성이 확대되고 수급 불균형이 해소된 만큼 향후 시장 상황을 반영하여 분기별로 유연하게 투자를 집행할 계획입니다. 그동안 공급 부족을 해소하기 위한 공정 전환과 함께 Capa 증가를 위한 투자가 동시에 이루어졌던 DRAM의 경우, 투자 효율성을 높이기 위해 노력할 것이며, NAND의 경우 원가 절감을 위한 3D 전환은 지속되는 가운데 수요가 줄어드는 2D Capa 감소가 빨라지면서 전체 Wafer Capa는 감소할 것으로 예상됩니다. The company plans to execute our investment plan on a quarterly basis with flexibility in light of rapidly rising external uncertainties and the consequent increase in demand volatility, as well as the ease in tight supply. Investments were made in DRAM to improve the tight supply situation, both through tech migration as well as capacity increase. We will now focus on improving investment efficiency. For NAND, 3D migration will continue as a way to reduce cost, while capacity will decrease much faster for 2D, whose demand keeps falling. Overall wafer capacity will decrease for NAND. 최근 거시경제적 불확실성과 다양한 변수들로 인해 메모리 시장에 대한 가시성이 낮아진 것이 사실입니다. 당사는 이러한 상황에 효과적으로 대응하기 위해서는 최고의 기술력과 유연한 투자 전략의 실행을 통해 사업 변동성을 최소화하는 것이 중요하다고 생각합니다. 이를 통해 SK hynix는 고객과 주주 여러분, 나아가 우리 사회에 더 나은 가치를 제공할 수 있도록 최선을 다하도록 하겠습니다. 감사합니다. It is true that the recent macroeconomic uncertainties and other factors have reduced visibility in the memory market. Effectively dealing with such environment would require minimizing business volatility by ensuring the best technology and adopting a flexible investment strategy. By doing so, SK hynix will keep striving to give the best value to our customers, shareholders, and our society. This concludes my report. Thank you. 그러면 Q&A 세션을 진행하겠습니다. We are now ready to take your questions. [Foreign language] Now Q&A session will begin. Please press star one, that is star and one if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant. [Foreign language] The first question will be provided by Peter Lee from Citigroup Global Markets Securities. Please go ahead with your question. 네, 안녕하세요. Citigroup 이세철입니다. 좋은 실적 축하드립니다. 저는 일단 두 가지 질문드리겠는데요. 일단 첫 번째 질문은 투자 관련입니다. 내년도 메모리 투자가 올해 대비 어떻게 변할지 설명 좀 부탁드리겠고요. 두 번째 질문은 내년도 전망 관련해서 SK hynix가 바라보는 2019년 글로벌 DRAM&NAND 수요 성장률과 SK hynix 빅픽처 전망에 대해서 의견 부탁드리겠습니다. Congratulations on the good performance. I have two questions. One is pertaining to investment. Do you see any differences between this year and next in your mobile investment? Second, about next year's outlook. For the year 2019, how do you see the global DRAM demand? What do you expect the increase to be in terms of the global DRAM demand? Second, what is SK hynix's bit growth outlook? I will first answer the question on bit growth, followed by the one on CapEx. Of course, it is too early to tell about the market next year. From our point of view as of today, our outlook is about 20% bit growth for DRAM and 40% for NAND. Given that we have not completed our business plan for 2019 yet, at this time, it is difficult for us to specify our CapEx planning for next year. Having said that, given the bit growth outlook that I have just mentioned, as well as the global economic uncertainties, under the assumption that we will keep working down the inventories, we can assume that for next year, the investment is going to be adjusted at a lower level than this year's. For this year, there has been active investment with an eye toward easing the tight supply. Going into next year, given that there are a lot of demand uncertainties, what we are planning to do is, instead of coming up with an investment plan for the year, it is going to be on a quarterly basis. We will make sure that we execute our investment plan on a quarterly basis with flexibility. The next question will be provided by Marcus Chin from Mizuho Securities. Please go ahead with your question. Thank you for taking my question. I also have two questions. The first question is about the recent interest in memory demand. As we understand it, since the fourth quarter, not only PC and smartphone customers but also data center customers have started to significantly reduce their memory demand orders. If possible, could you please tell us by how much the data center customers have adjusted their demand and how long you expect this adjustment to continue? Also, in your view, is this adjustment by data center customers driven by actual reduced demand or excess inventory, or is it a preemptive strategy to put pressure on memory vendors to lower prices for next year's purchases? Regarding demand, you mentioned in your presentation that demand for edge computing is increasing. Could you please provide a more detailed explanation of this? My second question is about the NAND business. In the second half, NAND prices have fallen more sharply than expected. For next year, there are also some views in the market that for SK hynix, your NAND business is going to turn to operating loss. If that is the case, if the NAND price continues to fall, are there any plans for the company to adjust the pace of the ramp-up in M15 as well as the volume? First of all, about the data center question. We believe that it is going to be a short-lived temporary adjustment. First of all, there would've been some burden coming from the very intensive and active investment that occurred in 2018. Also, the memory price has risen quite sharply. From their BOM perspective, they probably also had felt some burden. Having said that, there is no doubt that the demand will keep rising for the mid to long term. When we look at the macro environment for the IDC, for example, the global conversion to cloud, as well as the spread of AI, as well as increasing workload, we can see that they are all pointing toward growth for the long term. For the server DRAM bit growth, in 2018 it was 40%, and in 2019 even at a conservative estimate, it is going to be over 30%. For overall, the DRAM bit growth is likely to be around 20% to be led by the bit growth in server DRAM. In conclusion, for the server customers, the current temporary adjustment in demand is probably going to turn around in the second half of next year, 2019. We believe that by that time, the demand is going to recover to the previous level. This is not only the company's view, but also the views expressed by many of those who have worked or are currently working in the IDC industry in the Americas. For the edge computing, in the presentation it was more of a long-term outlook. For this year, out of the total sets, it was about 1%, but we believe that for the next three to four years it will go up to around 10%. Edge computing is not going to be a substitute of the existing data centers, but actually it is going to be complementary to the data centers. In terms of creating incremental memory demand, we believe that this is a very positive development. Allow me to answer your question about the M15 operation planning depending on the NAND market changes. The NAND price adjustment is likely to continue into the first quarter of next year. We do not believe that there is going to be a long, drawn-out slump in the market. Having said that, if it does come true, in other words, if the market situation worsens for NAND, for the M15, since we are operating this as one fab in conjunction with M11, yes, obviously there is going to be adjustment in the speed and the volume because we are using M15 to shift some of the 2D NAND from the M11. If the situation, as you have mentioned, if the market worsening continues, yes, we will make some adjustments. NAND 제품의 빠른 가격 하락으로 일부 수익성 저하가 예상됩니다만, 자사는 72-layer 비중 확대 및 생산성 향상을 통한 원가 개선, 그리고 수익성 위주의 Product Mix 운용을 통해서 수익성 확보에 주력할 예정입니다. Regarding demand pricing and also how it could affect our operating income. Yes, it is true that it would have some impact on our profitability, the company will remain focused on maintaining profitability by continuing to increase the portion of 72-layer products and also by improving our cost by enhancing productivity. We will also improve our product mix with more share of profitable products. 특히 경쟁력 있는 eSSD 제품 라인업을 확보해서 eSSD 고객 기반 및 고객 점유율을 확대하고, 이를 통해서 전체적인 비즈 포트폴리오 강화 및 수익성을 더욱 강화해 나갈 예정입니다. We will continue to expand the competitive eSSD lineup. By doing so, we intend to broaden our customer base as well as the market share while improving our business portfolio and strengthening profitability. 네, 다음 질문해 주십시오. 다음으로 질문해 주실 분은 NH투자증권의 도현우 님입니다. The next question will be provided by Hyunwoo Do from NH Investment & Securities. Please go ahead with your question. 질문 기회 주셔서 감사합니다. 질문 두 가지 있는데요. 첫 번째는 서두에 말씀하셨듯이 최근 Intel CPU가 공급이 좀 부족한데 시장의 이야기가 '이게 수요 문제다.' 아니면 '의외의 수요 호조로 공급이 부족한 거다.' 이야기들이 되게 많습니다. 근데 회사가 파악하고 있는 영향은 어떤 게 있고, 그리고 이게 메모리 수급에 미칠 수 있는 영향은 어떤 게 있는지 궁금합니다. 두 번째 질문은 미국이랑 중국이 최근에 무역 분쟁이 좀 심각한 상황인데, 여기에 따른 실제 중국향 IT 제품 수요 둔화 등 회사가 감지하고 있는 영향이 있는지 거기에 대해서 좀 궁금합니다. I also have two questions. First, as you have mentioned earlier, there has been some tight supply of Intel CPU. In the market, there are some talks of having some yield problems. As a result of this, the supply is not meeting the demand. What is the company's take? Do you also believe that it is the problem of the yields or are there any other issues as you understand them? The second question is related to the U.S.-China trade friction. Is the company seeing any impact from this? For example, has there been less sales of products for IT products in China? 첫 번째 Intel CPU 생산 관련해서는 저희 회사가 자세한 언급을 하기는 그렇습니다만, 여러 가지 많은 요인들이 복합적으로 작용하고 있는 것 같습니다. 그중에서도 예상치 못한 업사이드도 한 가지 요인이 되고 있습니다. First, regarding Intel CPU, of course, we are not in the position to comment on it. What we understand is that there are a number of various factors at play, and one of them could be the unexpected upside. 시장에 미치는 영향을 보면 우선적으로 서버 CPU는 전혀 문제없고요. 우선적으로 할당하고 있기 때문에. 그다음에 PC는 low-end급에서 일부 영향이 있는 것으로 파악되고 있습니다. In terms of the impact on the market, for the server CPUs, there are no problems because they are getting the preferred allocation, they are getting the allocation first. For the PCs, we understand that there is some impact that is being felt for the low-end PC products. 확신하기는 어렵지만 '19년 상반기까지 어느 정도 영향이 있을 것 같고, 그 정도는 PC 출하량의 low single digit % 정도 영향으로 보고 있고, 하반기에는 해소될 것으로 보고 있습니다. Of course, we cannot be certain of this, it's likely that the impact will last into the first half of 2019. The scale of the impact could be into the low single digit of the PC shipment. We believe that the impact will be eliminated by the second half of next year. 결론적으로 내년도 당사 내에서 PC DRAM의 비중이 10%대에 불과하기 때문에 당사 비즈니스에는 큰 영향이 있다고는 보지 않고 있습니다. In conclusion, for SK hynix, for next year, our plan is for the PC DRAM, it's only about 10% of the business. We believe that the impact to be felt on our business is almost none. 두 번째 질문하신 미중 영향 관련해서 당연히 중국 IT 수요 영향이 있다고 보는 게 맞을 것 같습니다. On to your second question about the U.S.-China trade friction and whether there has been an impact. Yes, I guess we cannot deny that there has been some impact on the demand from IT coming from China. 최근 국경절 수요도 예전만 하지 못했고, 중국의 주요 스마트폰 업체에 4사분기, 내년 1사분기 build pace로 조정이 되고 있는 것 같습니다. For example, the demand on the recent National Founding Day was not as high as what it used to be in the past. Also we see that from the smartphone makers, they are also making some adjustments to their plan for the fourth quarter and the first quarter of next year. 다만 opening presentation에서 말씀드렸다시피, 세트 포트폴리오 변경이나 고기능 카메라, 3D 센서 같은 그런 부가 기능들이 중저가급으로도 확산되면서 메모리 수요에는 긍정적인 요인이 기대되고 있습니다. Having said that, as we have explained during the opening presentation, looking at the changes in the set portfolio as well as the spread of the high performance camera and the 3D sensors to even the low to mid-end models, we believe that the demand for the memory is going to continue. 이런 요인들을 감안해서 정량화를 해보면, 전체 DRAM 수요에서 40% 비중에 이르는 모바일 수요는 내년에도 여전히 20% 가까운 수요 빅그로스를 보여줄 것으로 예상하고 있습니다. If we are to quantify all these factors into numbers, the mobile DRAM, which takes up 40% of total DRAM demand, is likely to maintain about 20% demand bit growth next year. 네, 다음 질문해 주십시오. 다음으로 질문해 주실 분은 하나금융투자의 김경민 님입니다. The next question will be provided by Claire Kyungmin Kim from Hana Financial Investment. Please go ahead with your question. 질문 기회 주셔서 감사드립니다. 신규 fab 운영과 DRAM 가격 전망에 대해서 각각 질문드리겠습니다. 신규 fab 2개 중 하나인 M15는 이번 달 초에 cleanroom이 오픈이 되었고, 나머지 하나인 Wuxi의 C2의 확장 fab은 연말에 오픈 준비 중인 것으로 알고 있는데요. 각각 가동이 돼서 실제 제품이 출하되는 시기는 언제로 예상하고 계신지요? 또한 내년 각 fab 가동에 따른 초기 capacity 수준은 어느 정도가 되고, 이로 인해서 전체 DRAM과 NAND 생산능력은 어느 정도 증가할 것으로 예상하시는지 궁금하고요. 두 번째 질문은 계절적으로 4분기에 비수기가 이미 시작된 것으로 생각이 됩니다. 최근 DRAM 가격 하락에 대해서 시장의 우려가 많은데요. 4분기와 1분기 전망, 그리고 비수기 극복 전략에 대해서 말씀 부탁드리겠습니다. I have questions on the new fab operation and also the DRAM price outlook. First, the M15. The clean room has recently opened, and also for the Wuxi fab, you plan to open the extension of the Wuxi fab by the end of this year. When do you believe that you can start shipping out of each of these fabs? Also related to that is for next year, what do you expect as the capacity for each fab, and what do you believe is going to be the increment to the DRAM and NAND capacity as a result of the addition of these two new fabs? The second question is, it seems as if the non-seasonality has already begun in the fourth quarter as a result the DRAM price going down. There are a lot of concerns in the market about the decline in the DRAM pricing. What is your outlook for the fourth quarter and into the first quarter of next year, and how do you plan to overcome this non-seasonality? 먼저 첫 번째 질문하신 new fab의 운영에 대한 말씀을 드리겠습니다. M15는 아까 말씀드렸듯이 NAND fab으로서 향후 72-layer tech 전환을 위한 space로 주로 활용될 예정이며, 현재 설비들이 입고 중이고, 1Q 초까지 설비에 대한 테스트 및 fab qual을 받게 되면 실제적으로 TAT를 감안할 때 빨라야 1분기 말에서 2분기 초 정도에 양산품이 출시 가능할 것으로 보이며, 본격적으로는 아마 2분기부터 양산품이 출하가 될 것으로 예상합니다. First about the new fab operation. For the M15, which will be used mostly for tech migration for the NAND. The M15, this is a NAND fab that will be used for tech migration to the 72-layer. As was explained earlier, the equipment is currently being moved into, we'll go through the testing and the fab qualification until the first part of the first quarter of next year. Given the TAT, we believe that we can probably start shipping by the end of the first quarter or the early second quarter of next year. Given all the circumstances, it's quite likely that we can start shipping in full out of the M15 fab by the second quarter of next year. 중국 Wuxi에 있는 C2 fab은 12월 정도에 오픈이 돼서 설비의 입고가 시작되면 아무래도 내년 1월까지 지속적으로 setup 작업이 진행되기 때문에 M15보다는 좀 늦은 2분기 정도에 양산이 가능할 것으로 보이고요. C2 fab은 현재 Wuxi에서는 주로 2Y와 2Z가 생산되고 있는데, 이 2Y, 2Z 제품을 1X 나노로 테크 전환하는 데 주로 스페이스가 사용될 예정이고요. 전체적인 캐파 증가나 이 부분은 내년 시황을 봐가면서 저희가 flexible하게 운영할 계획이기 때문에 현 단계에서 말씀드리기는 좀 어렵습니다. For the Wuxi C2 fab, this will open in December this year, and upon that time equipment will start being moved in. The setup will continue into January next year. We believe that it is going to be a bit later than the M15 fab in starting the volume production. It can probably start volume production in the second quarter of next year. For the C2, currently at the Wuxi fab, it is mostly the 2Y and 2Z nano that are being produced, and we are going to use the C2 fab to convert to the 1x-nanometer. As for your question on capacity for next year, because we plan to have flexible operation of the capacity, depending on the market circumstances, it is too early to tell. DRAM 가격 관련해서 2018년 내내 DRAM 가격의 분기 to 분기 상승세는 지속 완화 중이었습니다. 서두 presentation에서 말씀드렸다시피 Q3 가격 상승률은 1%에 불과했습니다. About the DRAM pricing. Throughout 2018, there has been slowdown in the DRAM price increase quarter-over-quarter. As was mentioned in the opening presentation, in the third quarter, the increase in DRAM price was only 1%. 향후 미래 가격에 대해서 명확하게 언급드리기는 힘듭니다만 Q4나 이어지는 Q1까지도 이 추세의 연장 선상에 있지 않을까 보고 있습니다. Of course it is very difficult to say what is going to come in the future. What we are assuming at this point is that for the fourth quarter as well as the first quarter of next year, this trend is likely to continue. 18년은 전형적인 상저하고 패턴에서 벗어나 있던 해고요. 19년은 어느 정도 정상화된 패턴을 보일 것으로 전망하고 있습니다. We usually say that the typical pattern is to be low in the first half and high in the second half. The year 2018 was an anomaly in that it was outside of this pattern. In 2019, we believe that this is going to go back to the traditional pattern. 회사는 19년 시황에 맞춰서 PSI, 그러니까 생산, 판매, 재고를 유연하게 운영할 예정입니다. For SK hynix for 2019, in 2019, we are going to be flexible in our PSI, the production, sales, and inventory, in accordance with the market circumstances. 네, 다음 질문해 주십시오. [Foreign language] The next question will be provided by SK Kim from Daewoo Capital Market. Please go ahead with your question. 질문 기회 주셔서 감사합니다. 저도 두 가지 질문인데요. 한 가지는 NAND 쪽에, 그리고 또 한 가지 쪽은 주주환원과 관련해서 질문을 드리고 싶습니다. 우선 NAND 관련해서는 3분기까지 지금 상당히 가격 하락이 지속되고 있는데요. 이에 따라서 모두에게 말씀하셨지만 수요 짐작에 대한 시장의 관심도 높아지고 있고, 또 저희가 파악하기로는 재고 수준도 개선이 되고 있는 움직임이 있는 것 같은데요. 이 NAND 시장의 수급 균형이 도달하는 시점이 언제 정도로 보시는지, 향후 수급 개선 전망에 대한 의견 부탁드리겠고요. 주주환원 관련해서는 올해도 그렇지만 내년에도 높은 실적이 유지하실 걸로 예상이 되는데요. 시장에서 이에 따라서 당사 주주환원에 대한 기대감도 높아지고 있고, 또 최근 주가가 상당히 저평가되고 있는 것 같은데요. 향후 주주환원의 추진 방향성 그리고 가이던스에 대해서 말씀 부탁드리겠습니다. 감사합니다. I also have two questions and one is about NAND and the second question is return to shareholders. Now first about NAND. It seems as if until the third quarter of this year, the decline in NAND pricing has continued. As a result, there has also been growing market interest in stimulating demand, as was also mentioned in your opening presentation. There are also signs that inventory level is improving. When do you believe that the demand supply balance will be met in the NAND market? What is your outlook on the improvement in the demand supply dynamics in the NAND market? The second question is on the return to the shareholders. Now, continuing from this year into next, SK hynix is expected to continue to have very high performance. There are also equally correspondingly increasing market expectations on return to shareholders. Also it seems as if there are also some views in the market that the SK hynix stock price there has been some low valuation of the stock. What is your direction for the return to shareholders and if you can give us some guidance? 최근 3개 분기 동안에 가격이 연속 하락하여서 현재 가격은 2016년 상반기 가격 수준으로 도달하였습니다. First about the NAND price. It is true that the NAND price has continued to slide for the past three quarters, reaching down to the level that we had seen in the first half of 2016. 아시는 것처럼 모바일 업체들은 고용량 채용을 이미 확대 중에 있고, PC 및 IDC 업체들은 SSD 탑재 용량 확대를 검토하고 있는 것으로 파악되고 있습니다. As you would know, in the mobile side, the mobile companies are already increasing their content per box, whereas in the PC and the IDC side, they're also considering increasing the density of the SSD. 일반적으로 가격 탄력성은 1개 분기 내지는 2개 분기 이후에 나타나는 경향이 있는데, 이를 고려하면 내년도 신규 제품의 탑재 용량 증가 효과를 예상하고 있습니다. Given that the price elasticity is realized usually one quarter after or two quarters later. What we are expecting is that for the new models to be launched next year, the content per box is likely to increase. 그래서 올해 가격 하락과 더불어서 연말이 넘어가면서 재고 상황은 조금 완화될 것으로 예상을 하고 있고, 하반기에는 탑재 용량 증가와 계절적 수요 기반으로 수급 자체가 안정화될 것으로 예상을 하고 있습니다. With the price decline throughout this year and also with signs of the inventory improving throughout this year and also over the end of this year, we believe that perhaps in the second half of next year, thanks to the seasonality as well as the materialization of the price elasticity, the demand and supply dynamics is going to become more stable. 두 번째 질문하신 주주 환원 정책에 대해서 말씀드리면, 먼저 크게 보면 주주 환원 정책에 큰 변화는 없다. 기존의 Free Cash Flow의 30%에서 50% 수준 범위 내에서 점진적으로 주주환원 배당 금액을 지속적으로 증가시켜 나가겠다는 것이 저희의 배당 정책이었습니다. 이 부분은 지속할 것이고. 다만 우려되는 부분은 전체적인 이익 증가 수준의 급증과 더불어서 캐시가 나가는 여러 가지 투자 지출, 운전자본의 증가, TAT가 상당히 길어지면서 운전자본의 증가, 이에 또 한국의 법인세 인상에 따른 법인세율의 상승, 이런 부분이 또한 Free Cash Flow의 증가를 제한하는 요인으로 작용하기 때문에 전체적으로 Free Cash Flow가 생각보다 아주 크지는 않다는 점이 걱정은 됩니다만, 어쨌든 저희는 그러한 전제하에서 주주 배당을 지속적으로 증가시키도록 그렇게 정책을 운용할 계획입니다. Regarding your question on the return to the shareholders. First of all, there are no major changes to our basic policy, and that was to gradually increase the dividend payout within the range of 30%-50% of the Free Cash Flow. This policy remains unchanged. Now, having said that, we also have to remember that the Free Cash Flow might not be as big as could be expected, because on one hand, of course, there has been a sharp rise in our operating profit, but also at the same time, there has been some increase in cash outlays. For example, increase in investment and also the growing need for working capital. Because of the TAT getting longer, the working capital required is also becoming larger. Also there has been a higher payment of the corporate tax and also the growing corporate tax rate. These are all factors that are going to push down the increase in the Free Cash Flow. Again, the Free Cash Flow might not be as big as expected, but now having said that, our basic policy of increasing the returns to shareholders remains unchanged. 네, 이제 시간 관계상 한 분만 더 질문을 받도록 하겠습니다. 다음 질문해 주십시오. [Foreign language] The next question will be provided by Mark Newman from Bernstein. Please go ahead with your question. Thanks for taking my question. I'd like to Two questions. On the pricing negotiations for the next quarter or two, I'd like to get a sense from management on the range of expectations we should potentially see for how bad price declines will be in both DRAM and NAND. For NAND, we've already seen double-digit price decline just now in Q3. How much worse could that be in Q4 and early next year? For DRAM, what's the range of expectations for price declines for the next couple quarters? Then the second question is specifically on the data center demand. It seems quite much more difficult to predict the demand from data center customers, particularly because you have these very lumpy big customers called the hyperscale players or cloud players. I wanted to see if maybe you could comment on how you think about that, how you're predicting that the demand should recover in the second half, because such a large portion of the demand is coming from just a few very big players, and we don't get a huge amount of information from those big players. If you could give some confidence to us on why you think that the demand will recover in data center in the second half of next year, I think that'd be very helpful. Thank you. Regarding the DRAM price, as was explained earlier, there has been a slowdown in the DRAM price increase throughout this year, and we believe that this trend will continue into the fourth quarter and the first quarter of next year. We do not expect any sharp decline, but then it's likely to remain flat or have a small decline in the price. It is difficult for us to give you a range of the decline. For the second half of next year, again, although it is difficult to predict at this point, the price is likely to remain flat or turn around to increase. The basis for this assumption is that for the data center big players, now their demand bit growth in the first half of next year will be in the single-digit %, but then in the second half of next year, it will be up to two-digit %. The reasons for such projection is, now typically, it's also quite typical that they would be getting ready for the events starting in the second half. There is going to be more investment into the infrastructure to be ready for the various events. Also, the temporary adjustments in the investment and inventory will be completed by the end of the first half. For NAND, in the third quarter, what we have seen is that now the number of suppliers that have increased in the first half, we see that they have also started selling off their inventory. As a result, the supply has spiked, and also the price has declined considerably in a very short period of time. We believe that this trend will continue into the fourth quarter. For the inventory, we believe that the inventory will be reduced around the time of the end of this year. As a result, the oversupply is going to be considerably eased in the first half of next year. As a result, we believe that the extent of the price decline would also ease. With that, we are going to conclude the SK hynix 2018 third quarter earnings release conference call. Thank you very much for your participation.