The earnings release will be interpreted simultaneously, and the Q&A will be interpreted consecutively. With that, we will begin the SK hynix 2024 Q4 earnings release conference call. Good morning, afternoon, and evening. This is Park Seong-Hwan, the head of IR at SK hynix. Welcome to the SK hynix 2024 Q4 earnings release conference call. Allow me to introduce the executives present here with me today. We are joined by CFO Kim Woo-hyun, Head of DRAM Marketing Kim Kyu-hyun, Head of NAND Marketing Kim Seok, and Head of HBM Sales and Marketing Kim Ki-tae. 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 earnings release conference call for fourth quarter and full year of 2024.
CFO Kim Woo-hyun will first present the earnings, followed by the company's future plans and market outlook, and a Q&A session with the attending executives.
Good morning, everyone. This is CFO Kim Woo-hyun. Allow me to first introduce the company's performance for the fourth quarter of 2024. Despite a delay in the recovery of demand for consumer products like PCs and smartphones, the demand for AI memory products in data centers, where investments are rapidly growing, drove overall demand. As a result, we significantly increased the sales of AI memory products, including HBM and enterprise SSDs, and achieved record-high quarterly revenue of KRW 19.77 trillion for the quarter, up 12% from the previous quarter and 75% compared to the same period last year. In DRAM, sales increase of high-value-added products such as HBM3E and server DDR5 drove a mid-single-digit % sequential increase in bit shipments.
Despite price decline in legacy products like DDR4 and LPDDR4, blended ASP rose by approximately 10% due to product mix effect. HBM saw another quarter of strong growth, accounting for over 40% of DRAM sales in the Q4, and shipments of HBM3E 12-high products also began as planned during the quarter. In NAND, although sales of enterprise SSDs increased, inventory adjustments by PC and mobile customers led to a reduction in purchasing demand, resulting in a mid-single-digit % decrease in both shipments and ASP quarter on quarter. Sales contribution from high-value-added products such as HBM and enterprise SSDs increased significantly, enabling us to maintain relatively stable revenue and profits even during market fluctuations and reflect our improved business structure.
As a result, operating income in Q4 increased by KRW 1.05 trillion to KRW 8.08 trillion, and operating margin rose by 1 percentage point to 41%, again marking record-high operating profit following the previous quarter. Depreciation and amortization for Q4 increased slightly from last quarter to KRW 3.17 trillion, with EBITDA reaching KRW 11.25 trillion and EBITDA margin of 57%. Non-operating gain net of expenses reached KRW 1.5 trillion. Notable items include foreign currency-related net gain of KRW 0.62 trillion due to strong dollar against won, and other non-operating net gain of KRW 0.87 trillion, which contains gain from the partial sale of stake in System IC Wuxi. As a result, net income before tax was KRW 9.58 trillion, and net profit for the period was KRW 8.01 trillion, with net profit margin of 41%. Now, moving on to the annual performance for 2024.
2024 was marked by a significant surge in AI memory demand driven by data centers. Thanks to our leadership in AI memory technology and our profit-oriented business decisions, consolidated revenue for 2024 reached KRW 66.2 trillion, surpassing the record-high revenue achieved in 2022. Operating income also exceeded the performance of past supercycle period in 2018, reaching KRW 23.5 trillion. As AI memory demand grows, the memory industry is transitioning from a commodity market driven by volume and price to a customized market focused on high performance and high quality products. 2024 results were especially meaningful in that we saw the possibility of memory companies generating stable profits by securing the ability to meet customers' high expectations and support their needs on time.
Following our achievement of supplying industry's first HBM3E 8- high products in March last year, we were also the first in the industry to support HBM3E 12- high products in fourth quarter, reinforcing our position as the leading HBM player. Backed by timely supply and sales expansion of HBM3E 8-high and 12 high products, annual HBM sales grew more than 4.5 times compared to last year, contributing significantly to our record-breaking DRAM performance. Additionally, we rapidly expanded sales of DDR5 and LPDDR5 products, which offer competitive performance and power efficiency, strengthening the profitability of our conventional DRAM products. Despite limited annual shipment growth in NAND, sales of higher-priced enterprise SSDs increased by more than 300% year on year, leading to not only a return to profitability for NAND in 2024, but also record annual revenue and operating income.
We also secured new demand areas by proactively developing high-density and high-performance storage solutions required for the AI infrastructure. At the end of last year, we launched 61 TB and 122 TB QLC-based enterprise SSD products, further enhancing our high-density enterprise SSD lineup. As of year-end, our consolidated cash and cash equivalents, including short-term investments, amounted to KRW 14.2 trillion, up KRW 5.2 trillion from end of last year's levels. Interest-bearing debt decreased by KRW 6.8 trillion from the previous year to KRW 22.7 trillion. And as a result, our debt-to-equity ratio and net debt-to-equity ratio improved meaningfully, reaching 31% and 12% respectively. Due to the substantial profit increase in 2024, our annual free cash flow, which is cash flow from operating activities less acquisition of property, plant, and equipment, amounted to KRW 13.9 trillion.
Following our former dividend policy, the board of directors confirmed total fourth quarter dividend of KRW 1,305 per share, which is KRW 300 per share as fixed dividend, and an additional dividend of KRW 1,005 per share, which is equivalent to 5% of 2024's annual free cash flow per share. In accordance with the amended articles of incorporation, the dividend record date for the last fiscal year will be set on February 28, 2025, and the actual dividend amount may be adjusted based on changes in the number of treasury shares until the dividend record date. Next is the company's market outlook and plan. 2025 memory demand outlook is clouded by inventory adjustments from PC and smartphone OEMs, as well as strengthened protective trade policies and geopolitical risks.
Nevertheless, supply demand conditions are expected to gradually improve towards the second half of the year as IT device demand improves and inventories are cleared. The demand growth momentum for AI memory products that began in 2023 is expected to continue to be the driving force behind this year's market growth. With the full-fledged beginning of the AI era, memory market demand is moving towards higher performance products from low-priced products. As a result, polarization of memory market demand is expected to become more severe. PC shipments this year are expected to grow by low to mid-single-digit %, driven by corporate PC replacement demand from end-of-support for Windows 10, as well as effects from AI PC shipments kicking in.
AI PC penetration is expected to reach around 30%-4 0%, leading to an increase in adoption of not only 16 GB DRAM, which is known to be the minimum required DRAM density for AI PC, but also 24 GB and 32 GB densities. The smartphone market is expected to grow by a low to mid-single-digit %, similar to last year's level. The penetration of AI-enabled smartphones is expected to grow to approximately 30%, driving demand for higher contents as well as higher performance mobile memory like LPDDR5X and LPDDR5T. Furthermore, the inclusion of smartphones and tablets to China's consumer subsidies is also expected to drive positive developments on set demand this year. Strong growth of server market demand is expected to continue, driven by big tech companies' ongoing competitive investments to secure advanced AI training and inference capabilities.
Recently, some big tech firms have even announced annual AI data center investment plans that far exceed market expectations, underscoring the importance of large-scale infrastructure as a key to gaining AI competitiveness. As a result, investments in AI servers are expected to continue expanding for the foreseeable future. Demand growth for HBM and high-density server DRAM is also expected to continue, driven by more launches of generative AI-based services and agents, combined with rapid rise in demand for computing resources to support the growing importance of inference technologies in AI. Additionally, within the next two to three years, demand for custom HBM designed to meet the diverse needs of AI customers is also expected to grow considerably.
Meanwhile, considering big tech companies' demand to replace legacy platforms to improve power and space efficiency, overall server market, including AI and general-purpose server, is expected to grow in the high single-digit range this year. All in all, this year's DRAM demand is projected to grow by mid- to high teens %, while NAND demand is expected to increase by low teens %. Now, I will discuss the company's plans for this year. Considering the seasonally weak period for IT devices and relatively high memory inventory levels in the supply chain for some end markets, we anticipate a low teens % sequential decrease in first quarter DRAM bit shipments and high teens % decrease in NAND shipments. Since the second half of last year, decoupling of demand between AI memory and conventional memory became more pronounced, and this led to differentiating product mix and sales strategies among suppliers.
Based on our differentiated AI product competitiveness and profit-oriented business decisions, we plan to maintain stable performance even during the period of market corrections. This year, our HBM revenue is expected to grow by over 100% compared to that of last year, driven by strong customer demand. In particular, demand from ASIC customers is expected to increase meaningfully, expanding our customer base. Volume shipment of HBM3E 12-high products is proceeding smoothly, and we anticipate 12-high products to account for more than half of the total HBM3E shipments by first half of this year, as previously planned. In November last year, we developed the industry's first HBM3E 16-high product based on advanced MR-MUF process, further demonstrating our leadership in HBM technology. This year, we plan to complete development of HBM4 12-high product and prepare for mass production as the product will be mainstreamed from 2026.
By supporting the product on time of customers' needs, we plan to maintain our leadership in the HBM market. Additionally, by migrating to advanced nodes, we are preparing to increase production of DDR5 and LPDDR5 products that will have solid technological competitiveness and are showing better demand. This will allow us to produce more competitive products compared to latecomers. To meet the upcoming demand for on-device AI, we are also preparing various product lines such as LPCAMM2 and UFS, which offer improved data processing speed and power efficiency, and plan to supply them in time for increasing customer demand this year. For NAND, considering delayed demand recovery in a wide range of applications other than enterprise SSDs, we will continue our profit-focused approach and sales strategy that is aligned with demand, as we have done last year.
Meanwhile, we are proactively preparing manufacturing infrastructure to support next-generation technologies and products in a timely manner and continue leadership in those markets. M15X fab is currently under construction in Cheongju and is scheduled to open in the fourth quarter of this year. The first fab in the Yongin is also scheduled to begin construction this year, with a target fab opening in the second quarter of 2027. The construction of these new fabs will lead to a marked increase in infrastructure-related investment this year, though overall investment increment will be limited. However, we will continue to follow the principle of investing only in products that ensure profitability and make flexible investment decisions based on changing market conditions. In addition, we have completed an advanced packaging investment agreement with the state of Indiana in the U.S. and signed a final funding agreement with the U.S.
government under the CHIPS Act for approximately KRW 660 billion at the end of last year. We will secure advanced packaging facilities to ensure our ability to produce a variety of customized memory products on time and to meet the increasingly complex demands of our customers. Finally, let me introduce our new shareholder return policy. In November 2024, we announced a new shareholder return policy to be implemented over the next three years. We have determined that in order to further enhance our corporate value, it is essential to strengthen our position as a leading AI memory company through continuous investment while also swiftly improving financial stability that was weakened during the recent downturn. To this end, we have set securing positive net cash and appropriate cash levels as our financial goals, which will enable stable business operations and investments to maintain competitiveness regardless of future market fluctuations.
These objectives have been incorporated into our current shareholder return policy. First, the annual fixed dividend per share will be increased by 25% from KRW 1,200 to KRW 1,500, which increases the total cash dividend paid to shareholders to KRW 1 trillion per year. This ensures that the total cash dividends paid during this policy period will be at least the same level as that paid under the previous policy. However, going forward, only the fixed annual dividend amount will be paid, and the 5% of annual FCF that was distributed under the previous policy will be used to strengthen our financial soundness. At the same time, we will maintain to use 50% of accumulated three-year FCF as a resource to provide total shareholder returns. Any additional returns beyond the annual dividend will be made within the scope of maintaining financial goals after the policy term ends.
Through this new shareholder return policy, we expect to enhance our financial soundness, allowing us to steadily improve our corporate value even amid market fluctuations, and as our performance continues to improve, we expect to be able to offer additional returns to shareholders. Moving forward, we will strive to consistently improve our performance based on our leadership in our AI space and ultimately increase the scale of returns to shareholders over the long term. Thank you. With that, we are now ready to take your questions.
[Foreign language]. Now, Q&A session will begin. Please press star one, that is, star 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 two, on your phone.
The first question will be provided by Kim Sun-woo from Meritz Securities. Please go ahead with your question.
[Foreign language]
The question is, commodity memory prices have started to decline from Q4 due to weak demand and increased supply from Chinese manufacturers, and this trend seems likely to continue into the first half of the year.
So how do you view the memory market for this year, and do you see it as a short-term adjustment, or do you expect a correction similar to 2023?
[Foreign language]
Thank you very much for the question. Our first answer is the part related to DRAM. As you mentioned, commodity memory prices began to decline from Q4 last year due to a continuous slowdown in demand from major applications. The price decline has been particularly evident for DDR4 and LPDDR4 products, which are impacted by high inventory levels and increased supply from Chinese manufacturers.
[Foreign language]
And we anticipate that the commodity memory market will continue to show a weak pricing trend in the short term because of the influence from the slow seasonal demand in the first half and inventory adjustment by customers.
[Foreign language]
However, starting in the second half, we expect increased demand for high-end high-density memory in AI PCs and smartphones, and this demand, coupled with supply expansion of DDR5 from memory manufacturers, is unlikely to cause significant imbalance between supply and demand.
[Foreign language]
Therefore, we predict that there will be a continuous growth in HBM AI memory market, whereas conventional DRAM market will go through a gradual smooth correction.
[Foreign language]
Most suppliers are focusing investment on HBM, where demand visibility is high and profitability is secured. This cautious investment focusing on HBM and prioritizing AI memory production over commodity products with limited capacity suggests that the cycle this time will be different from past downturns.
[Foreign language]
Let me also touch upon the NAND.
[Foreign language]
NAND has been more significantly affected by demand slowdowns in traditional applications, and some suppliers have already announced production cuts. We also plan to continue our flexible investment and production strategies that we have maintained since 2023 to focus on profitability.
[Foreign language]
So in this slide, we anticipate that NAND will also experience a milder correction compared to previous downturns.
[Foreign language]
However, for the market situations to improve, both supply adjustment and a recovery in end demand are critical, and the pace of NAND market recovery will ultimately depend on how quickly demand for general purpose applications rebound.
[Foreign language]
Next question. [Foreign language] . The following question will be presented by Nicolas Gaudois from UBS. Please go ahead with your question.
Good morning. Thanks for taking my question. Regarding HBM, could you give us a bit more details on your preparation status for HBM4? In particular, when would production actually start for HBM4 12-high, and when do you expect to ship in volumes to customers initially with volume in 2026? Do you have also a broad timeline for when 16-high HBM4 would come?
Lastly, for the logic-based die, can you confirm you would use TSMC from the start for HBM4 12-high? Thank you.
[Foreign language]
Thank you for the question. As we mentioned earlier, our HBM4 product is being developed based on the proven 1b nanometer technology, which ensures both technical stability and mass producibility.
We aim to complete development and be ready for ramp-up by the second half of this year.
[Foreign language]
HBM4 supply will initially begin with 12-Hi products, and 16-Hi products will follow based on customer demand, and shipments are expected in the second half of next year.
[Foreign language]
And regarding 16-Hi packaging technology, we anticipate that we can leverage our experience with the Advanced MR-MUF process, which was first applied in HBM3, to mass produce HBM4 16-Hi products.
[Foreign language]
For the first time in HBM4, we plan to use logic foundries for the base die to enhance performance and power efficiency. To achieve this, we are collaborating closely with TSMC as one team.
[Foreign language]
Next question, please.
[Foreign language]
The following question will be presented by Jay Kwon from J.P. Morgan. Please go ahead with your question.
[Foreign language]
So thank you for giving me the chance to ask questions. You mentioned that the CapEx investment will increase this year compared to last year.
Considering the current demand environment, is there any possibility of reducing the planned CAPEX? And what will be the approximate breakdown for infrastructure investment versus the fab investment this year? And can you also compare the investment this year to last year?
[Foreign language]
So thank you for the question. Let me answer your question. This year, we plan to have a slight increase in investment compared to last year, and this will be mainly driven by HBM investment that we agreed upon with customers and the construction of M15X and Yongin Fab that lay foundation for future growth.
[Foreign language]
So as we mentioned before, when making investment, we put priority on products with proven profitability, and we are guided by principles of responding to market changes with agility and flexibility.
[Foreign language]
And this year, our primary focus will be on investment essential to meet market demands, and at the same time, we'll work hard to lay groundwork for future growth, including fab construction, to ensure that our leading technologies will turn into business at the right time.
[Foreign language]
So the majority of investment this year will be concentrated on HBM and infrastructure, and infrastructure investment is expected to increase significantly compared to last year.
[Foreign language]
So we'll continue to optimize resource allocation for each product to expand FCF and maximize investment efficiency by prioritizing technology transitions and also seize growth opportunities through agile market responses.
[Foreign language]
Next question.
[Foreign language]. The following question will be presented by Kim Dong-won from KB Securities. Please go ahead with your question.
[Foreign language]
So how much DDR4 and LPDDR4 proportion will be reduced compared to last year?
[Foreign language]
So this year in the DRAM market, high-performance high-end products like HBM and DDR5, they're expected to see tight supply because of increasing demand, whereas legacy products such as DDR4 and LPDDR4, they're likely to experience an accelerated decline in demand, which will deepen the decoupling trend between product types.
[Foreign language]
So our competitiveness in HBM and DDR5 underpins our leading position in the DRAM market, and in order to focus on meeting the demand for these products, we'll continue to scale down the production of legacy products like DDR4 and LPDDR4 and streamline and clear inventory.
[Foreign language]
As a result, the share of legacy products such as DDR4 and LPDDR4 in our revenue is projected to drop significantly from around 20% last year to single digit this year.
[Foreign language]
Next question.
[Foreign language] . The following question will be presented by SK Kim from Daiwa Securities. Please go ahead with your question.
[Foreign language]
[Foreign language]
So first of all, congratulations on your great and excellent performance. I do have a question regarding HBM. As AI technology trends shift from the training phase to the inferencing phase, there are concerns that demand for high-performance HBM may also slow down. What's your view on this?
[Foreign language]
Thank you for the question. I don't really think so.
In the early AI market, GPUs equipped with high-performance HBM were essential for training AI, and it was expected that the inferencing phase may require relatively low-end HBM, but that was only the initial expectation. With the recent development of inference AI, the market is now shifting toward a more advanced inference, and this only highlights the growing importance of higher memory capacity and bandwidth.
[Foreign language]
So to ultimately develop artificial general intelligence or AGI that resembles human intelligence, substantial computational power is required even during the inferencing phase.
Therefore, rather than slowing down demand, we expect that the expansion of the AI market toward inference will become a critical driver for HBM growth.
[Foreign language]
Moreover, we anticipate that major tech companies' ongoing competitive investment will continue to secure AI leadership and also to achieve precise training and inference results. AI investment plans are now being announced not only by corporations but also at the national government level, indicating that AI demand will continue to surpass our growth expectation.
[Foreign language]
In addition, the technologies presented at CES this year, such as physical AI and various AI agents, they are expected to serve as long-term growth drivers for HBM demand and will continue to push forward the development of both processors and software.
[Foreign language]
[Foreign language] . The following question will be presented by Ryu Young-ho from NH Investment & Securities. Please go ahead with your question.
[Foreign language].
So I would like to ask a question in relation with servers. Server DDR5 demand last year was very strong, and are there any signs of slowdown in customer demand recently?
What's your assessment of the hyperscale customers' DRAM inventory level?
[Foreign language].
Thank you for the question. Hyperscale customers have continuously expanded investment to secure high-performance computing infrastructure, and accordingly, AI servers have also continuously exhibited strong demand growth, and also investment in conventional servers have also been made alongside in tandem, which ensured robust server DRAM demand this year following last year.
[Foreign language]
Also, when establishing AI data centers, there is a growing emphasis on efficient space utilization and high energy efficiency. Taking into consideration the replacement cycle of servers where massive investment was made in 2017 and 2018, we expect that this year we will see a strong surge in replacement demand.
[Foreign language]
In addition, with new CPUs that support DDR5 ramping up this year and customers holding low DDR5 inventory levels, server DRAM demand, particularly for DDR5, is expected to remain very strong.
[Foreign language]
Even if DDR5 prices undergo temporary adjustments, server customers will still have opportunities to build inventory at favorable prices, and therefore we don't really have a serious concern about potential slowdown in DDR5 demand.
[Foreign language]
So by proactively addressing the demand for high-performance, high-density server DRAM modules this year, we will continue to secure our leadership in the server market.
[Foreign language]
Next question.
[Foreign language] . The following question will be presented by Peter Lee from Citigroup. Please go ahead with your question.
[Foreign language]
[Foreign language]
So again, once again, big congratulations for your excellent performance despite the deepening decoupling trend in the memory market demand. There is a perception that your 1c nanometer process is superior to competitors. What is the SK hynix status of 1c nanometer development, and what are your plans for expanding investment?
[Foreign language]
So based on our excellent 1b nanometer technology, we completed the development of 1c nanometer products in the second half of last year, and we also built potential for mass production.
[Foreign language]
Our 1c nanometer-based DDR5 product supports a maximum operating speed of 9.2Gbps, approximately 28% faster than the previous generation, with over a 9% improvement in power efficiency. As we transition to the AI era, which demands rapid data processing and low power consumption, these products are designed to be optimized to meet future server demand.
[Foreign language]
In addition, 1c nanometer products exceeded the target yield for the initial ramp-up phase already in the development stage, indicating that the expanded production and ramp-up could lead to significant cost savings.
[Foreign language]
So while we will begin applying 1c nanometer to ramp up conventional DRAM products starting from the second half, a significant portion of investment this year will focus on HBM and infrastructure, where we already secured customer demand. And therefore, we will keep a close eye on future demand and supply dynamics in order to make the right investment decisions for ramp-up.
[Foreign language]
And also, as for the 1c nanometer process that shows the excellent performance and stable initial yield, so we are going to apply that to the HBM4E in the future in order to ensure the timely development and supply of the next generation HBM products to secure and maintain market leadership.
[Foreign language]
Next question.
[Foreign language] . The following question will be presented by Han Dong-hee from SK Securities. Please go ahead with your question.
[Foreign language]
So I have one question regarding NAND.
If the current downward trend in NAND price continues, there is a possibility that the industry might return to losses in the second half of the year. Do you have any additional plan for NAND production cuts? If so, to what extent and for how long?
[Foreign language]
So during the previous downturn, we cut production mainly in legacy technologies while increasing wafer production in 2024 to meet rising eSSD demand.
[Foreign language]
However, for products other than enterprise SSD, we have maintained limited production considering the delayed recovery of demand in general application.
[Foreign language]
Moving forward, until we see clear signs of demand improvement for NAND, we will continue to maintain current approach and flexibly adjust production in line with market conditions, and we will focus on normalizing inventory levels.
[Foreign language]
Next question.
[Foreign language] . The following question will be presented by Kim Young-gun from Mirae Asset Securities. Please go ahead with your question.
[Foreign language]
Thank you for the opportunity.
When do you expect to finalize HBM supply volumes for 2026, and do you think the strong growth trend of HBM will be sustained in the future?
[Foreign language]
So we SK hynix have already initiated discussions with some customers regarding HBM supply volumes for 2026, so we expect that we will be able to gain some visibility for most of the next year's volumes by the first half of this year.
[Foreign language]
Considering the high investment cost and long TAT associated with the HBM business, we aim to enhance business stability and visibility by securing a long-term contract through a proactive negotiation with customers.
[Foreign language] .
As we mentioned earlier, the AI market holds significant growth potential far exceeding our expectations, and they are mainly driven by advancements in learning and inference technologies, as well as the integration of AI services across different industries.
[Foreign language]
The fourth industrial revolution, previously represented by big data, artificial intelligence, robotics, and autonomous vehicles, is now transforming industries with strong and visible AI innovation. This accelerating industrial transformation is expected to continuously generate high computing demand, and therefore we have no doubt about the sustained long-term growth of HBM demand.
[Foreign language]
Next question.
[Foreign language] . The following question will be presented by Choi Bo-young from Kyobo Securities. Please go ahead with your question.
[Foreign language]
So let me ask you a simple question. In this year's performance, could you please elaborate on the significant non-operating profit recorded and the factors that influenced it?
[Foreign language]
[Foreign language]
So our subsidiary, SK hynix System IC, held a 100% stake in System IC Wuxi, and they completed the process of converting the System IC Wuxi into a joint venture last November. And during this process, some of our stakes were divested, resulting in approximately KRW 1.3 trillion in gains, and it was recognized as non-operating income in Q4.
[Foreign language]
In addition, in December, Kioxia went public, and our investment assets in Kioxia were reevaluated to reflect the year-end closing price, and this resulted in the valuation loss of approximately 100 billion KRW. Sorry, KRW 200 billion.
[Foreign language]
In addition, due to rising exchange rate, we recorded a net foreign exchange gain of approximately KRW 600 billion, and overall, all in all, the total non-operating profit for Q4 amounted to about KRW 1.5 trillion.
[Foreign language]
We will take two more questions. Next question, please.
[Foreign language] . The following question will be presented by Giuni Lee from Goldman Sachs. Please go ahead with your question.
[Foreign language]
Again, congratulations for your good performance, and thank you for giving me this opportunity. There are increasing debates on the Chinese DRAM companies nowadays. So how does the SK hynix assess the technological capabilities of these Chinese DRAM companies? Do you think that they can enter the DDR5 and HBM market?
[Foreign language]
Since the second half of last year, Chinese DRAM manufacturers have expanded the supply of DDR4 and LPDDR4 products, and coupled with slow demand, the prices of these le gacy products have continuously dropped. And recently, some reports even suggest DDR5 development and sales by Chinese manufacturers, raising concerns about potential market impact.
[Foreign language]
However, the technologies applied by these late-comer companies are significantly behind the advanced nodes used by major leading suppliers, and therefore this will lead to a clear wide gap in quality and performance of DDR5 products.
[Foreign language]
Moreover, with ongoing restrictions against Chinese companies and China, Chinese manufacturers are expected to face heightened uncertainties in developing advanced nodes and technologies.
[Foreign language]
So by focusing on advanced node development and ensuring timely readiness for high-performance products and developing various AI memory products, including HBM, we will continue to maintain a strong lead over competitors in various aspects, including product portfolio, performance, quality, and customer services.
[Foreign language]
Now we'll take last question.
[Foreign language] . The last question will be presented by Simon Woo from Bank of America. Please go ahead with your question.
[Foreign language]
[Foreign language]
Thank you for giving me this chance. My question is about your prediction for the production growth rate for DRAM, excluding HBM, because there is an ongoing CapEx investment centering around HBM, so I want to know about your plans for general conventional DRAM.
[Foreign language]
So over the past two years, we have utilized the advanced nodes with priority in order to reduce conventional DRAM production in response to market downturns and also to mass-produce profitable HBM products. And therefore, we have seen a very limited increase in the production of conventional DRAM except HBM.
Starting in the second half of last year, we have scaled down the legacy DRAM production due to worsening supply and demand conditions. But at the same time, we are expanding the adoption of 1a nanometer processes to increase supply for DDR5 and LPDDR5, which show strong demand. And therefore, the wafer production for conventional DRAM is expected to grow slightly this year. If we take into account the production increase due to the transition to advanced processes and the increase in wafer production for general DRAM, then this year general DRAM is expected to see production increase at the level of the market demand growth rate.
Considering the production increase due to migration to advanced process and wafer production increase for conventional DRAM products, we expect that general DRAM production this year is expected to grow at a rate aligned with market demand.
[Foreign language]
This year, with solid and strong HBM demand in the AI market, we will maximize HBM production, and for conventional DRAM products, we will have a product mix prioritizing profitability within limited capacity. And by pursuing transitioning to advanced nodes, we will ensure timely supply for customers and maintain healthy and sound inventory levels for legacy products.