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 DRAM marketing group; and Vice President Kim Young-rae in charge of NAND marketing group. Let me issue a disclaimer that all outlooks presented by the company are subject to change depending on the macroeconomic and market circumstances. With that, we will now begin SK hynix 2018 first quarter earnings release conference call. Let me now turn over to Executive Vice President Lee Myung-young to present the first quarter earnings and the company's plan and market outlook for this year.
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 first quarter of 2018.
Favorable pricing conditions continued despite seasonal slowdown of demand. With DRAM and NAND bit shipments decrease, first quarter consolidated sales totaled KRW 8.72 trillion, down 3% from the previous quarter. Despite expanded bit shipment for server products on the back of continuous strong demand, DRAM bit shipments fell by 5% quarter-on-quarter due to mobile demand weakness and fewer production days. ASP rose by 9% quarter-on-quarter, on par with last quarter's increase, rising across all DRAM products, including mobile. For NAND flash, bit shipment fell by 10% quarter-on-quarter. There was weaker demand for mobile products, and sales of some leading-edge products had to be carried forward due to some customers' qualification schedule. Prices weakened in all product categories, however, price fall was minimal, resulting in ASP fall of 1% from the previous quarter.
For MCP, sales grew by 17% from the previous quarter, and its portion out of sales rose to 24%. There was increase in both its price and shipment as Chinese smartphone makers continued to adopt higher density memory. Our operating profit in the first quarter was KRW 4.367 trillion, down slightly quarter-on-quarter, following slower sales. Operating profit margin rose slightly to 50%. Depreciation and amortization expense for the quarter was KRW 1.446 trillion, up from the previous quarter. EBITDA was KRW 5.813 trillion, representing an EBITDA margin of 67%. There was a net non-operating expense of KRW 77 billion. Foreign currency loss was reduced to around KRW 81 billion, following the relative stability of the Korean won exchange rate.
한편, 법인세 법정 최고 세율의 상승과 함께 전 분기 해외 법인의 이연 법인세 자산 인식에 따른 일회성 법인세 감소 효과가 종료되며 법인세 비용이 증가하였습니다. 이에 따라 1분기 법인세 비용은 전 분기 대비 증가한 1조 1,700억 원이 발생하였고, 법인세 차감 후 순이익은 3조 1,210억 원, 순이익률은 36%를 기록하였습니다.
Corporate tax for the first quarter was KRW 1.17 trillion, an increase from the previous quarter. There was increase in the statutory maximum corporate tax rate, as well as recognition of the deferred tax asset of overseas subsidiaries in the previous quarter, which ended the one-off reduction effect in corporate tax. Our net profit after corporate tax for the quarter was KRW 3.121 trillion with a net profit margin of 36%.
1분기 말 당사가 보유한 전체 현금성 자산은 8조 2,660억원으로 2017년 말에 비해 2,890억원가량 감소하였으며, 차입금은 3,050억원 감소한 3조 8,670억원을 기록하여 4조 4,000억원의 순현금 상태를 유지하였습니다.
Consolidated cash balance at the end of the first quarter was KRW 8.266 trillion, a decrease of approximately KRW 289 billion from the end of 2017. Our interest-bearing debt stood at KRW 3.867 trillion, a decrease by KRW 305 billion, maintaining a net cash position of KRW 4.4 trillion.
다음으로 시장 전망과 향후 계획에 대해 말씀드리겠습니다.
I would like to discuss the company's market outlook and plan.
작년부터 이어지고 있는 서버 DRAM 수요 증가는 올해는 물론 당분간 DRAM 시장의 성장을 주도해 나갈 것으로 예상됩니다.
Demand growth for server DRAM continues from last year, it is expected to keep driving the overall DRAM market growth, not only this year but beyond.
북미 시장에 이어 중국 시장에서도 인터넷 데이터센터 업체, 즉 IDC 업체들이 데이터센터를 확장하는 데 주력하면서 글로벌 주요 IDC 업체들의 투자가 전년 대비 20%에서 30%가량 증가할 것으로 예상됩니다. 이러한 추세는 전 세계 데이터 트래픽과 워크로드의 증가량과 속도를 감안할 때 일시적인 현상에 그치지 않을 전망입니다. 여기에 AI와 IoT 등 새로운 서비스 기반이 더해지고, 신규 서버 플랫폼 채용이 확산되면서 대용량 서버 DRAM 모듈의 채용 속도는 더욱 가속화되고 있습니다.
Globally, major IDC provider's investment is expected to grow by 20%-30% from the previous year, as they keep focusing on expanding their data centers, first in the North American market and now in the Chinese market. This trend is not likely to be temporary, given the volume and growth in global data traffic and workloads. With the addition of new service infrastructure for AI and IoT and broader use of new server platforms, adoption of high density server DRAM module is accelerating.
아울러 게임용 고사양 PC와 Chromebook을 중심으로 수요가 개선되면서 PC의 출하 감소세도 진정되었고, 가상화폐 채굴 기용 수요와 빅데이터 처리를 위한 서버용 그래픽 프로세서 채용으로 그래픽 DRAM 수요 증가가 예상되는 등 서버 이외의 분야에서도 DRAM 수요 강세가 이어지고 있습니다.
In addition, demand for DRAM is gaining strength in non-server categories as well. The decline in PC shipments has slowed down with pickup in demand for high performance gaming PCs and Chromebooks. Graphic DRAM demand is also expected to grow with higher demand for cryptocurrency mining and growing adoption of graphic processors for big data processing in servers.
한편, 스마트폰 시장은 성숙기에 접어들며 출하량 성장은 둔화되겠으나, 영상과 이미지로 소통하고자 하는 소비자들의 트렌드에 부합하기 위해 카메라 기능이 강조되고 AI 기능이 추가되면서 기기당 평균 DRAM 탑재량이 꾸준히 증가할 것으로 보입니다.
For smartphones, shipment growth will slow down as the market reaches maturation. Camera performance keeps getting upgraded in pace with consumers need to communicate through video and images while more smartphones are adding AI features, leading to continued increase in DRAM content per box.
이러한 상황을 고려할 때 올해 DRAM 수요 증가는 20% 초반 수준이 예상됩니다. 반면 공급은 업체들이 1x-nm 공정 전환을 가속화할 뿐 아니라, 투자 증가를 통해 웨이퍼 capacity를 추가하는 노력을 지속함에도 불구하고 공급 부족 상황을 해소하기에는 충분하지 못할 것으로 예상됩니다.
Given the above, demand for DRAM is expected to grow by low 20% level this year. Supply growth will not be enough to ease the tight supply situation even as suppliers accelerate their migration to 1x nano and continue to add wafer capacity by increasing investment.
한편, NAND 시장은 SSD 중심의 수요 증가가 지속되며 특히 Enterprise SSD가 수요 증가를 견인할 것으로 보입니다.
For demand market, the demand growth continues around SSD. Enterprise SSD, in particular, is expected to drive growth.
작년 NAND 가격의 상승에도 불구하고 Enterprise SSD는 대형 IDC 업체들을 중심으로 서버 내 채용이 적극적으로 이루어지며, 높은 출하량 증가와 용량 증가가 이루어졌습니다. 올해에는 72단과 64-layer 3D 제품 생산이 증가하며, 이를 기반으로 출시될 고용량 SSD의 채용이 늘면서 Enterprise SSD가 전체 SSD향 NAND 수요의 절반 수준까지 비중이 확대될 것으로 보입니다.
Enterprise SSD achieved high growth in shipment and density as large IDC providers led the way in adopting them in servers, despite the rising NAND price during last year. Growing production of 72-layer and 64-layer 3D NAND products this year will lead to the launch and increased adoption of high-density SSDs. The portion of Enterprise SSD will increase to nearly half of all NAND demand for SSD.
아울러 Client SSD는 상대적으로 가격 탄력성이 높은 편으로 향후 3D NAND의 공급 증가가 이루어지며 NAND 가격이 안정화됨에 따라 채용량 증가가 가속화될 것으로 예상됩니다.
Client SSD has relatively high price elasticity. Client SSD content per box is expected to grow as more supply grows with 3D NAND production, which will lead to NAND pricing stabilization.
모바일 시장 전반에 걸쳐 NAND 용량 차별화를 통한 고객들의 판매 확대 노력이 이어지며, 플래그십 스마트폰용 UFS뿐 아니라 Mid-End 스마트폰용에 채용되는 EMCP에도 128GB의 NAND 탑재가 시작되었습니다. 이에 따라 스마트폰에서 고용량 3D NAND 채용률도 꾸준히 높아질 것으로 예상됩니다.
Mobile customers are continuing to aim for their better smartphone sales based on differentiation through higher NAND contents, with 128GB NAND being adopted for not only the flagship UFS smartphones, but also for mid-end smartphones with EMCP. Following this trend, there will be continued higher adoption of high-density 3D NAND for smartphones.
3D 전환에 따른 공급 측면의 가변적 요소가 존재하지만, 업계의 72단과 64-layer 위주의 생산이 본격화되면서 연간으로 약 40% 중반의 NAND 플래시 공급 증가가 예상되며, 수요 증가도 이와 비슷하여 NAND 시장의 공급 부족 상황은 전년 대비는 완화될 것으로 보입니다.
Some uncertainties remain due to the 3D transition in the NAND industry, NAND flash supply growth is expected at mid 40% for the year, with the industry going into mass production in earnest with 72-layer and 64-layer products. Demand growth is expected to be in line with supply growth, easing tight supply in demand market compared to previous year.
서버 DRAM과 Enterprise SSD가 주도하는 최근의 메모리 수요 환경은 메모리 업체들에게 큰 기회이기도 하지만, 동시에 고객이 요구하는 제품의 품질과 완성도도 높아졌습니다. 이에 SK hynix는 차질 없는 기술 개발과 양산 적용을 통해 고객 만족을 위해 노력하겠습니다.
The recent memory demand environment led by server DRAM and Enterprise SSD is certainly a big opportunity for memory makers. There is also higher demand for quality and integrity coming from customers. SK hynix will strive to provide customer satisfaction through technological development as planned and volume production.
먼저 DRAM은 1x-nm 기술의 전환을 가속화할 예정으로 PC와 모바일 제품에 이어서 2분기에는 서버와 그래픽 제품에서도 1x-nm 기술을 적용한 제품의 판매를 본격화할 계획입니다. 아울러 수요 강세가 지속되는 서버 DRAM에 대한 공급을 늘리면서 PC OEM과 중국 모바일 고객의 재고 빌드 수요에 대응할 계획입니다.
First, for DRAM, the company plans to speed up migration to 1x nano. Following the PC and mobile products, we will also start sales of server and graphic products with 1x nano technology in the second quarter. We will also expand supply of the server DRAM, for which demand remains strong, and thus respond to the PC OEMs and Chinese mobile customers' demand for inventory buildup.
NAND는 72-layer 3D NAND 제품을 적용한 UFS 기반의 고용량 모바일 제품과 다양한 인터페이스와 폼팩터를 갖춘 Client SSD 판매를 확대할 계획입니다. 특히 본격적인 Enterprise SSD 시장 진입과 관련하여 최근 IDC 고객으로부터 인증을 확보한 PCIe 기반 제품 공급을 2분기부터 시작할 예정입니다. 이를 통해 성장하는 Enterprise SSD 시장에서 의미 있는 경쟁자로 자리매김하고, 당사의 제품 포트폴리오를 다변화해 나가겠습니다.
For NAND, the company plans to grow sales of 72-layer 3D NAND products used for high-density mobile UFS products, as well as Client SSD with different interfaces and form factors. Particularly for our plan to enter the Enterprise SSD market, we will start supplying in the second quarter, PCIe-based products that have been recently qualified by an IDC customer. It will enable the company to establish itself as a significant player in the fast-growing Enterprise SSD market and diversify our product portfolio. At the same time, the company will move ahead as planned with the new construction at M15 Cheongju plant and expansion of the Wuxi fab to serve as the basis of our future growth and to enable us to meet market demand in a timely manner. The company's shipment growth plan for this year is in line with market growth for both DRAM and NAND.
For the second quarter, shipment growth for DRAM is planned at mid 10% level and NAND at high 10% level. Such plan is based on the projected production increase in the second quarter, based on higher use of next generation processes and the base effect of reduced shipment in the previous quarter. The current data-driven technological development is bringing about faster and bigger changes to our lives than ever before. As a result, customers are placing greater importance on the role and value of memory semiconductors. Given this trend, SK hynix will focus on improving our memory technology and product quality based on our understanding of the technologies and industries of the future. We will work towards sustainable growth by providing unique yet core values to customers. Thank you very much for your attention. With that, we are now ready to take your questions. 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, 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. The first question will be provided by Ricky Seo from HSBC. Please go ahead, sir.
I have two questions regarding NAND. First, in the first quarter, it appears as if the NAND price had remained more robust than market concerns. Could you explain the background that made it possible per application? Second is, we see that across all the NAND suppliers, it seems as if the bit growth is falling short of the initial plan, meaning in the early part of this year.
Perhaps this is due to the difficulties in upgrading to the 72-layer and the 64-layer. If you could give us an update on Hynix, and do you believe that you will be able to achieve your bit growth guidance for this year?
수요가 제한적인 채널 시장의 가격은 수요 대비 공급이 증가되어서 전분기 대비 약세를 보였습니다. 반면에 주요 수요처인 OEM 유지 솔루션 시장에서는 지난해 말 대비 수급 상황이 분야별로 개선되면서 응용 분야별 예상 수준의 소폭의 가격 하락이 있었습니다.
I will answer the question about the NAND price first. For the channel market, there has been increase in the supply, meaning that the price slightly fell. For the OEM market, which is the bigger part of the market, for the solutions market, the supply and demand dynamics improved slightly. For the applications in this field, the price also fell.
이에 시장 전반적으로 OEM 시장의 안정에 의해서 안정적인 가격 흐름이 유지되었고, 공급사별로는 응용 분야별 판매 비중에 따라서 일부 차이는 있을 것으로 예상하고 있습니다.
Across the OEM market, thanks to the stability in the OEM market, there was also stability across the market as well. We believe that by supplier, there would also be some differences depending on the application.
두 번째, 72-layer 관련된 질문에 대해서 말씀드리겠습니다. 3D NAND 적층 단수가 높아지면서 공정 난이도가 증가해서 업계 전반적으로 이전 테크 대비 인증이 지연되고 일도 확보의 어려움이 증가하고 있는 부분은 사실입니다.
Regarding your second question about the 72-layer. It is true that there is some delay in the customer qualifications as well as securing the yield. With regards to your question about the 72-layer, it is true that there has been some delay in qualifications and also in difficulties in securing the yield because of the increasing process complexity as the number of layers for the 3D NAND continues to increase.
하지만 당사의 경우 올해 수립한 72단의 제품 인증과 생산 비중 확대 계획은 현재까지 큰 차질 없이 진행되고 있고, 계획된 올해 비트크로스는 달성 가능한 것으로 예상하고 있습니다.
For SK hynix, the validation for the 72-layer as well as the portion out of the production are moving as scheduled, and we believe that we will be able to achieve the bit growth plan for this year.
다음 질문해 주시죠.
[Foreign language] The following question will be presented by Marcus Shin from Mizuho Securities. Please go ahead, sir.
질문 기회 주셔서 감사드립니다. 저도 두 가지 여쭤보고 싶은데요. 첫 번째 질문은 DRAM 부분에 관해서 여쭤보고 싶습니다. 최근에 저희 업계 전반으로 미세화 공정 진행 속도가 상당히 늦춰지고 있는 것 같은데, 관련해서 저희 SK hynix 올해 1x 나노미터 공정 현황이랑 그리고 올해 연말까지 어느 정도 목표하고 계시는지 여쭤보고 싶고요. 가능하시면 올해 원가 절감 폭을 어느 정도 예상하고 계시는지 여쭤보고 싶습니다. 두 번째 질문은 NAND 쪽 관한 건데요. 최근에 하이퍼 스케일 주요 고객들 동향을 살펴보면 raw NAND chip을 활용하는 self build SSD 수요가 점차 증가하고 있는 것으로 파악되고 있는데요. 저희가 보기에는 이 부분이 SK hynix에게는 고객의 폭을 넓힐 수 있는 기회 요인이 될 수 있지만, 동시에 NAND maker로서 가치를 좀 더할 수 있는, 포기하지 않을 수 있는 위협 요인이 될 수도 있다고 보고 있는데 관련해서 회사에서 어떤 방향으로 보시는지, 또 어떤 대응 전략 갖고 계신지 여쭤보고 싶습니다. 감사합니다.
I also have two questions. First is about DRAM. Across the industry, we see that the migration to fine technology is slowing down considerably. I would just like to get an update on SK hynix. For example, your migration to 1x nano. What is the current update? What is your target for this year? In terms of the cost reduction, what is your plan for the % of the cost reduction? Second question is about NAND. For hyperscale, we see that there is growing demand for self-built SSD for raw NAND chip. This probably means that this is a good opportunity for SK hynix to diversify its customers, at the same time, this can also be a threat for NAND makers to create new value. What would be your view regarding this trend?
첫 번째, SK hynix 1x DRAM 관련해서는 작년 말에 PC부터 시작해서 올 초 모바일, 그리고 연이어 서버, 그래픽, 전 응용 분야로 인증과 양산 개시가 확대되고 있습니다.
first for the SK hynix 1x DRAM. Starting late last year for PC and then also early this year for mobile, we see that there is a spread of qualifications and volume production for server and graphics as well.
차질 없이 계획된 일정과 yield up 계획대로 진행되고 있고, 이런 식으로 가면 연말에 SK hynix 전체 DRAM 중에 1x의 비중은 3분의 1 이상 될 것으로 보고 있습니다. 이 덕으로 원가도 적절한 수준으로 떨어질 것으로 보고 있습니다.
We are moving on schedule for both the production as well as the yield up. At this pace, we believe that by the end of this year, the 1x nano out of the total DRAM will take up over one third. Thanks to this, we believe that the cost would also fall to an appropriate level. Regarding your second question about NAND. In terms of the demand growth for the self-built SSD at hyperscale, now on one hand, it is positive because it is stemming from the demand growth for the enterprise SSD. At the same time, it is also difficult to tell. It's too early to tell whether it is going to be a threat or opportunity because there is going to be different types of collaboration or competition to unfold in this sector.
For SK hynix, we are trying to expand our presence in the enterprise SSD market. Our focus for now is to continue to develop SSD module products and increase sales.
The following question will be presented by Peter Lee from Citigroup Global Markets Securities. Please go ahead, sir.
I also have two questions about DRAM. As you have mentioned earlier, there seem to be a lot of changes on the server and the graphic side. In the first quarter and the second quarter, what would be your demand forecast for each application of DRAM? Recently there is increase in the DRAM capacity across the industry, causing some concerns of possible oversupply in the second half of this year or next year. What would be SK hynix's view regarding this? I would take your question about the second quarter and the second half demand. When we look at the market, it is true that in the first quarter the Chinese market was a bit slow.
When we look at the big four, including Huawei or Xiaomi, we can all see that they were performing quite nicely. For the smartphone market in general, it is likely that the growth in the set is going to stagnate a bit. When we look at the Chinese big four, we believe that the content per box will continue to grow. Meaning that for the demand, for both the NAND and DRAM, we believe that it is going to remain robust into the second half. Next is about the graphics market. It is true that up until recently, the graphics market was quite hot due to the demand for mining for cryptocurrency. In the second half, with the expected launch of the ASIC miner for Ethereum, it is likely to balance out the demand for graphics.
For the server market, the IDC providers not only in the U.S. but also in China, represented by the BAT, they are all increasing their investment this year significantly.
또한 신규 SoC 등장으로 서버 메모리 채용량이 급격히 증가되고 있는 상황이기도 합니다. 실제로 저희가 대부분의 서버 IDC 고객들과 1년 locking 딜을 한 상태인데, 상반기에도 추가 업사이드 요청 물량을 요구받았습니다만, 충분히 공급하지 못했습니다. 이러한 상황은 하반기까지도 지속될 것으로 보고 있습니다.
With the appearance of the new SoC, the memory content per server keeps increasing. With most of the server IDCs, we have one year locking deal. In the first half, we have also received some additional upside volume request. There was not enough supply, and we believe that this trend will continue into the second half.
두 번째 질문하신 시장의 공급업체들의 Capa 증설에 따른 향후 공급 증가에 대한 우려에 대해서 말씀드리겠습니다.
I would like to take your second question about the capacity increase across the market and the concerns for oversupply.
작년부터 크게 DRAM 공급업체들의 테크 전환에 따른 bit growth가 상당히 제한되고 있습니다. 이에 따라서 수요는 상당폭 증가가 있음에도 불구하고 테크 전환으로 인한 bit growth의 제약으로 인해서 그 부분을 충분히 충족하지 못하고 있습니다.
Starting from last year, there has been limited bit growth in DRAM supply because of the continuing tech migration. As a result, although the demand has grown considerably because of the limited bit growth coming from the tech migration, that demand growth has not been fully met.
반면, 고객의 수요는, 스마트폰은 성장이 어느 정도 이제 대수에 있어서는 정체돼 있지만 그래도 일부 성장을 하고 있고, 특히 다른 어플리케이션에서의 성장률이 상당히 높기 때문에 이러한 수요 성장을 테크의 전환 속도로써는 도저히 충족시킬 수 없는 상황입니다.
Again, when we look at the demand, customers' demand, we can see that, of course, for the smartphones, although growth is limited, but we are still seeing some growth. Then very rapid growth in other applications. Given such demand growth that we see these days, it's simply not enough to fulfill such demand growth using only tech migration.
따라서 성장하는 수요를 충족시키기 위해서는 불가피하게 투자 지출 증대를 통한 Capa의 증대가 필요합니다. 이에 따라서 아마 공급사들은 최소한 매년 6내지 7% 정도의 wafer Capa를 증대하면서 수요를 충족해 나가야 할 것입니다.
This means that to meet the demand growth, it is almost unavoidable that we increase capacity by increasing investment. Consequently, we believe that for the suppliers, they will have to meet the demand growth by increasing wafer capacity by 6%-7% per annum.
그리고 시장에서는 일정 시점에서의 Capa 증가가 그 이후 년도 또는 그 이후 이후 년도까지 지속적으로 시장의 공급 증가에 부담을 줄 것이라고 예상하고 있는데, 이는 앞으로 테크가 진전되면서 더욱더 테크 전환으로 인한 bit growth가 작아질 것으로 예상되기 때문에 공급사 입장에서는 충분히 향후 capacity 또는 CapEx를 조절을 통해서 시장의 수급에 대응할 수 있다고 봅니다.
From the market, there are some concerns about the supply as the capacity continues to increase with growing investment. As I mentioned earlier, because the bit growth is slowing down from the tech migration, for the suppliers, I believe that they will be able to make some adjustments based on their investment or capacity increase. I believe that thanks to this, the demand and supply dynamics in the market will remain favorable.
네, 다음 질문해 주시죠.
다음으로 질문해 주실 분은 한국투자증권의 유정우 님입니다.
The following question will be provided by Yoo Jong-woo from Korea Investment & Securities. Please go ahead, sir.
예, 질문 기회 주셔서 감사합니다. 저도 서버 DRAM 관련돼서 두 가지 정도 질문드리겠는데요. 우선 서버 DRAM 가격 상승이 계속되고 있습니다. 저희가 계속 이 서버 DRAM 가격 상승이 되더라도 구매 업체들 가격 저항은 없다라고 이렇게 알고 있는데, 이런 상황이 언제까지 지속이 될 수 있는지, 회사에서는 어떻게 바라보는지 말씀해 주시면 감사하겠고요. 두 번째는 저희 회사에 대한 질문인데, 서버 DRAM 비중이 다른 경쟁 업체 대비 더 높은 걸로 알고 있습니다. 그래서 비트 기준으로 서버 DRAM 비중이 모바일 DRAM 비중을 초월하는 시기가 올해 내로 발생을 할 것 같은데, 올해 언제쯤 이런 비중의 역전이 발생을 할지 말씀해 주시면 감사하겠습니다. 그리고 이렇게 서버 DRAM 비중이 올라가면 수요 변동성 측면에서는 저희 쪽에 어떻게 영향을 줄 수 있는지 말씀해 주시면 감사하겠습니다.
I have two questions. First is about the server DRAM. We see that the price increase continues for server DRAM, and it was mentioned recently that there is no resistance coming from the buyers despite the price increase. How long do you believe that this is going to continue? What is the company's view on this? The second question is about the company. Your server DRAM price is, I understand, higher than the competitors. By a bit, the portion of the server DRAM is expected to exceed the mobile DRAM soon, likely this year. When do you foresee the server DRAM outnumbering mobile DRAM this year? Also as the server DRAM continues to rise in portion, do you believe that this is going to affect the demand? Meaning that do you believe that this will cause any changes in the demand?
For server DRAM pricing. Actually, for the second quarter, we have already completed the price negotiation with the major server DRAM customers. Basically, as the shortage continued, the tight supply continued, the customers were focusing on securing the needed volume. Unlike smartphones, which are ordinary consumables, meaning consumer products, the servers, they are more used for production. In terms of the TCO for data centers, in terms of the server machines portion as well as the server machine components portion, we believe that the investment into them will continue for some time. Regarding your second question. In the market, by bit, mobile is so large that for a long time the mobile portion was the dominant one. For the company, for us, the server portion is quite large, and we have a large market share in the server side.
Already this year, the difference between the mobile and server portions has been really reduced. We believe that as early as next year, the server bit is going to outgrow the mobile bit. Last point, the server market growth rate has outpaced the DRAM growth rate, and we believe that this trend will continue into the next two to three years. Given this, then for SK hynix to keep increasing its server portion and to keep increasing the market share, we believe that things bode well for us. The following question will be presented by Doyun Choe from Shinhan Investment Corp.. Please go ahead, sir. I also have two questions. First is about your NAND competitiveness.
I understand that SK hynix has recently launched the Enterprise SSD, which is going to have an impact on the productivity and profitability of your NAND products, and also for the 72-layer solution business. If you could give us an update on the business development for the 72-layer solutions. Second question is about the memory semiconductor industry overall. You have already given some hints about your view on the supply and demand dynamics for the second quarter and the second half, if you could give us a more specific view or guidance for the DRAM pricing in the second quarter and second half. First question, 72-layer business. Regarding the Enterprise SSD, we have already completed the validation. For both the Enterprise SSD as well as across all applications. Currently we are trying to get additional validation for the applications.
Based on this, starting from the third quarter of this year, we are going to have the 72-layer as our mainstream product for the Enterprise SSD as well as all other applications and continue to increase sales. Based on that, we believe that by the end of this year, the 72-layer will be about half. Regarding your second question about the NAND market outlook. In the second quarter and the second half, based on the qualifications and the increase in the share of the 72-layer and the 64-layer, we believe that there's also going to be increase in the supply. At the same time, due to the seasonality, driving further demand as well as the increase in the content per box, we believe that overall there's going to be a balance in the supply and demand.
Because of this, there is not going to be much price volatility that could come from imbalance in the supply and demand. There could be some gradual pricing adjustment for some of the high density products. It could also depend on the application. These market outlook would also depend slightly for each application, depending on the competition as well as the price elasticity. Regarding the DRAM pricing now, into the second half of this year, although it is going to ease a bit, we believe that the tight supply will continue. This is also the view that is shared by the customers, and that is why they were focusing on securing the volume for the second half of this year. As a result, we believe that the pricing in the market will be determined based on the circumstances.
The following question will be provided by Doyun Oh from NH Investment & Securities. Please go ahead, sir.
I also have two questions. First, I see that in your first quarter financial performance, there have been some changes in the inventory. Has there been increase in the inventory of the DRAM and NAND? What is your outlook regarding the inventory in the future? The second question is about the new fab completion. The completion schedule as well as the schedule for moving in the equipment, have there also been changes?
앞으로도 연말까지 DRAM은 굉장히 타이트한 상황이 지속되면서, 이 부분이 크게 재고가 증가할 가능성은 없어 보이고 1주 초반대에서 유지되거나 아니면 1주 정도까지 줄어들 가능성도 있습니다.
First about the inventory for DRAM. For DRAM compared to last year, there has been almost no increase in the first quarter either. It remains at early one, low one week level. As the tight supply continues, we believe that this level will also continue until the end of this year. Meaning that the inventory level is not likely to increase by much, or it could actually fall slightly.
NAND는 작년 말 대비 1분기 말에 약 2주에서 4주 정도로 증가를 했습니다. 그 주요한 원인은 1분기에 72단을 램프업 하면서 인증 전에 저희 보유 물량이 증가를 했고, 2분기에 가면서는 또 3분기 모바일 물량에 대한 준비가 시작되기 때문에 2분기까지는 재고 수준이 약 한 4주 정도로 유지되지 않을까 전망을 하고 있고요. 3, 4분기 가서 재고 수준은 다시 2주 수준으로 떨어질 걸로 예상하고 있습니다.
For NAND, compared to the end of last year, there has been increase in the inventory in the first quarter from two weeks to four weeks. This is because, first of all, the ramp up in the 72-layer production, and we need to hold some volume before the qualifications are completed. Also in the second quarter, the inventory will still remain a bit high because we also have to be ready for the mobile demand in the third quarter. That is why we believe that up until the second quarter of this year, the inventory for NAND will remain at about four weeks level. Afterwards, in the third and the fourth quarters, it is going to fall to two weeks level again.
신규 팹의 진행 상황에 대해서는 지금 청주의 M15와 중국의 DRAM 확장, 팹 확장이 진행되고 있는데 두 가지 다 현재로서는 아직 확정을 못하고 있고요. 지금 내부 관련 팀들 간에 조율 중인데 청주는 약간 연말보다는 빠른 시기에 클린룸을 오픈할 수 있지 않을까 예상은 해볼 수 있는데 확정되지 않았고요. 중국은 원래 예상대로 올해 말 정도에 오픈하지 않을까 생각합니다.
About our schedule for the new fab. The M15 in Cheongju and the fab expansion in China. For both, the decision has not been finalized yet, so we are still making some adjustments and trying to coordinate between the different teams. Having said that, it is likely that for the Cheongju M15, the clean room might be opened slightly earlier than we had initially scheduled, so perhaps a bit earlier than the end of this year. For the fab expansion in China, it is likely to move as scheduled, meaning that to be completed by the end of this year.
네, 이제 한 분만 질문을 더 받도록 하겠습니다. 다음 분 질문해 주십시오.
We will take one last question.
마지막으로 질문해 주실 분은 UBS의 Nicolas Gaudois입니다.
The last question will be presented by Nicolas Gaudois from UBS. Please go ahead, sir.
Yes. Hi. Thanks for taking my question. First of all, could you comment a little bit on your CapEx? I mean, if you look at the level in Q1 2018, that increased quite significantly quarter-over-quarter. In the context of that, do you still expect overall CapEx to be up about 30% year-over-year? Would you have to make adjustments to this also regarding what you just said for M15? Second question is more for clarification. For DRAM, you gave us some idea about the 2018 expected bit demand growth in the low 20s, you said supplies would not be enough and Hynix would go in and out of the market.
all in all, what would you expect SK hynix to grow in terms of bit shipments vis-a-vis actual market growth, which, I suspect will be a little bit lower than the demand growth you gave. Thank you.
먼저 CapEx에 대해서 질문을 드려보도록 하겠습니다. 지금 보니까 올해 1사분기에서 보면, 직전 분기 대비 증가한 부분이 있는데요. 그러다 보니까 CapEx 같은 경우에도 결국에는 지금 예상하시는 30%보다는 더 증가를 할 것을 예상을 하고 계시는지. 예를 들면 앞서서 M15에 대해서도 말씀하신 바가 있는데 이러한 거 대비해서 CapEx가 예상보다 좀 더 늘어날 가능성이 있는지가 첫 번째 질문이고요. 두 번째로는 DRAM과 관련해서 앞서서 어느 정도 말씀해 주시긴 했었는데, 2018년도 bit growth 전망에 대해서 한 20% 정도를 이야기를 하시면서 현재 또 이 공급 부족 상황도 지속이 될 것이다라고 말씀하셨는데요. 어쨌든 좀 구체적으로 하이닉스의 경우에는 이 bit growth가 어느 정도가 될 것이라고 예상을 하시는지, 시장 대비해서 아마 지금 이 수요를 보았을 때는 시장 대비 낮지 않을까란 생각이 들지만, 어쨌든 하이닉스는 그러면 DRAM과 관련해서 bit growth를 어느 정도로 예상하고 계신지요?
먼저 CapEx 투자 지출과 관련된 질문에 말씀드리겠습니다. 지난번 말씀드린 대로 아직 저희가 올해 신규 팹에 장비를 입고할 시점을 확정하지 못하고 있어서 전체적인 CapEx를 확정하지는 못하고 있습니다. 그러나 지난번 말씀드린 대로 최소한 작년 10.3조 대비 30% 이상은 최소한 증가할 것으로 예상됩니다. 거기에 최근에 공정 난이도 증가에 따라서 저희가 R&D 투자가 증가되고 있고, 또 패키지 테스트 쪽의 투자가 상당히 증가되는 모습을 보이고 있습니다. 따라서 30% 증가는 현재 전망으로는 최소한의 증가라고 보여지고, 거기에 약간의 업사이드가 있고, 만약에 클린룸이 연말보다 많이 빠른 시기에 장비를 입고할 수 있는 수준 정도까지 빠른 시기에 오픈이 된다면, 내년에 투자될 장비 투자가 일부 올해 연말로 당겨져서 투자될 가능성도 있습니다.
first about the CapEx plan. For this year, as was explained earlier, because we have not finalized the completion for the new fab as well as the schedule for moving in the equipment, we have not been able to finalize the overall CapEx amount yet. One thing is for sure is that there is going to be at least a 30% increase to the KRW 10.3 trillion CapEx of last year. Aside from this, there is increase in the process complexity, meaning that there is also increase in the R&D investment as well as increase in the investment for package and testing. When I say a 30% increase, this is the minimum level, and potentially there is a very likelihood of an upside to the CapEx increase.
Also, for the fab, now, if the clean room is ready much earlier than we had initially scheduled, meaning if it can be opened much earlier than in the end of this year to receive the equipment, then it is also likely that the investment for the equipment that we had planned for next year would be pulled up to this year.
아울러서 1분기에 상대적으로 현금 흐름표를 보시면 투자 지출로 인한 현금 캐시아웃이 약 4조 원을 초과하고 있습니다. 이 부분은 1분기에 저희 신규 테크인 1x 나노와 NAND에서의 72단이 동시에 램프업을 많이 되고 있는 상황이기 때문에, 특별히 1분기에 장비 투자가 많이 됐다고 이해하시면 되고요. 그에 따라서 저희가 보는 2분기의 비그로스는 상대적으로 좀 높은 수준, 그러나 이 부분이 3분기, 4분기 가면서는 비그로스가 낮아지는 형태의 모습을 보일 것으로 보고, 이에 따라서 D램은 연간으로 봐서는 시장 수준인 20% 초반의 비그로스를 예상을 하고 있습니다.
When you look at the cash flow for the first quarter, in terms of the cash out from the investment spending, then it was about KRW 4 trillion. This is because there has been a simultaneous ramp-up for the new technologies of 1x, as well as the NAND, the 72-layer in the first quarter. Basically this means that there has been a big increase in the investment into equipment in the first quarter. Based on this, we believe that in the second quarter, the bit growth is going to be much higher. Bit growth will slow down afterwards in the third and the fourth quarters. For the year, we expect the DRAM bit growth to be on par with the market at low 20% level.
네, 그럼 이상으로 SK hynix의 1분기 실적 발표 컨퍼런스 콜을 모두 마치도록 하겠습니다. 참여해 주신 모든 분께 감사드립니다.
This concludes the SK hynix 2018 first quarter earnings release conference call. Thank you very much for your participation.