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SK Hynix hits 3-year revenue high as extreme ultraviolet production kicks off in earnest

Commercial EUV LPDDR4 modules in the works now, but the 1anm node is still being treated as a test-bed

Memory maker SK Hynix has boasted of its best sales quarter since prior to the pandemic, and confirmed the start of volume production on its extreme ultraviolet (EUV) product line.

The biggest milestone for the company's most recent financial report came in its confirmation that commercial volume production had begun on its 1anm process node – its fourth-generation 10nm process and the first to make use of EUV lithography, which lets it create parts with reduced feature size over traditional lithographic processes and reduce multiple lithographic passes into a single pass.

"[The] 1anm product, which applies EUV technology, recently started volume production for a mobile application to be supplied to customers starting in the second half," chief financial officer Kevin Noh confirmed during the company's earnings call, following on from an announcement earlier this month that production had begun on 1anm LPDDR4 parts for the mobile market.

It's an area SK Hynix hopes will grow, too. "Next year, looking at the market and industry overall, then we believe that continuous growth has to come from new and emerging technologies like the LPDDR or DDR5 or the EUV process," Park Myoung-Soo, the company's head of DRAM marketing, added. "And this is likely to temporarily pull down the productivity, but also increase the product value. So, for the market in general, we believe that there is going to be continuous growth in the size of the value."

There's a catch, though: SK Hynix is treating its 1anm node, which will also underpin the company's LPDDR5 and DDR5 products due for production next year, as both volume production and a test-bed for EUV – and is limiting EUV's use, at least initially, to a single layer on the wafer. "We are maintaining the existing technology platform and we are applying the EUV on the 1anm products for testing purposes," Noh admitted.

"EUV also has some challenges, especially when you're adopting it for the first time. There could be some unexpected technical difficulties."

Additionally, SK Hynix confirmed progress on its $9bn acquisition of Intel's NAND and SSD business, kicked off in October last year, which is set to make it the world's second biggest supplier of flash memory – behind Samsung.

"Including China, we went through the antitrust review in eight countries," Park Seong Hwan, head of investor relations, explained. "And we have received the unconditional approval from seven countries, including the US and the EU. So, the last in the approval process is to come from China.

"What we are hoping for is to receive the approval in an appropriate time in the second half of the year, so that we will be able to have the closing of the deal by the end of this year as we are planning to. So, right now, the process in China is in the final review phase."

Inventory, meanwhile, continued to deplete amid insatiable demand – and the company has warned it sees no relief in the short term. "Looking back to the market early this year or even late last year, the most important question was the COVID situation, or how we are going to recover from the COVID situation," Park Myoung-Soo explained.

"At that time, our thinking was that just utilising the production capacity was not enough, and that we had to tap into the inventory in order to fulfil the growing demand. This, of course, resulted in, as is expected, reduction in the inventory level on the supply side.

"Looking at the current trends, which are likely to continue into the end of this year and also all the way into next year, we believe that because of the demand – both the demand and supply factors combined in the industry, we believe that for the industry overall, the inventory level will continue to decline," said Park.

The company was hit by production issues earlier this year, admitting in June that "a defect was found in a few DRAM products." Local reporting pointed to rumours that 240,000 wafers were botched, but SK Hynix told us those numbers were "absolutely not true" and that it affected "a limited number of customers."

For the second half of the year, the company announced it will concentrate on volume production of high-capacity 64GB DRAM parts based on its 16Gb platform, as well as a move to 176-layer NAND products – which combined with its mature 128-layer parts will make up for 80 per cent of the company's NAND sales, Noh projected.

Overall, the company boasted of its first quarterly revenue in excess of ₩10 trillion ($8.67bn/£6.27bn) for three years, reaching back prior to the COVID-19 pandemic, with an operating profit margin of 26 per cent – a three percentage point gain on the same quarter last year and 10 points on Q1 2021. The company's net income grew 57 per cent year-on-year to ₩1.988 trillion ($1.72bn/£1.25bn).

SK Hynix had not responded to a request for further comment in time for publication. ®

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