Kioxia's guidance missed expectations! What lies ahead for the memory chip sector?

業績會第一現場

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海力士2026财年Q3业绩直播

Key Takeaways (AI-Generated)

Financial Performance

- Q3 revenue hit KRW 104.6T (+32% QoQ, +328% YoY); operating profit reached KRW 83.3T with an 80% margin, setting all-time records.

- Net income was KRW 39.8T (38% margin); EBITDA totaled KRW 87.7T. DRAM ASP rose high-20%, while NAND ASP increased mid-20% due to enterprise SSD mix.

- Cash and equivalents stood at KRW 114.5T; interest-bearing debt fell to KRW 15.8T, resulting in a net cash position of KRW 98.7T.

Business Highlights

- HBM4 mass production began in Q3, expected to surpass HBM3E in shipment volume and revenue share by Q4. Signed LTAs with 14 customers securing >50% capacity for 2027-2028.

- Solidigm IPO review discontinued due to market volatility; focus remains on AI data center storage competitiveness. Special dividend planned to return Kyoxia investment gains to shareholders.

- Developing next-gen technologies including 4F² DRAM platform transition and KV cache offloading solutions (SALTK V, CMM Hybrid) for NAND applications.

Financial Guidance

- FY2026 shareholder return target is ~KRW 100T (≥KRW 30T dividends, ≥KRW 60T buybacks/cancellations). Q4 DRAM shipments expected to grow mid-20% sequentially; NAND up mid-single-digit %.

- Global CSP CapEx projected to grow >60% in 2027; memory demand growth forecast at mid-20% for DRAM and high-teens % for NAND. 2027 capex will increase significantly vs 2026.

Opportunities

- Broadening investor base beyond big tech to include sovereign AI and non-tech corporate investments. Transitioning to HBM4 and developing custom solutions; leveraging NAND for AI context memory tiers.

- Extending LTA contract periods and deepening collaboration with major global CSPs for next-generation product roadmaps. Executing large-scale buybacks and special dividends to enhance per-share value.

Risks

- Potential adjustments in AI infrastructure investment pace if monetization lags or interest rates remain high. Supply constraints persisting through 2030 may limit ability to fully meet customer volume requirements.

- Other companies working on new cell structures (e.g., 4F²) heightening long-term technology competition.

Full Transcript (AI-Generated)

Operator

The conference call for the third quarter of fiscal year 2026 earnings results by SK Hynix will commence in a few minutes. Please wait until the conference begins.

Park Song on Head of IR at SK hynix

Good morning and thank you for attending SK Hynix earnings release conference call. Today, we will begin with SK Hynix's earnings presentation followed by Q&A session. Please press *1, that is * and 1 if you have any questions. Please note that the presentation will be interpreted simultaneously and Q&A session will be interpreted consecutively. With that, we are now ready to begin.

Good morning, afternoon and evening. This is Park Song on Head of IR at SK hynix. Welcome to the SK Hynix 2026 third quarter earnings release conference call. Allow me to introduce the executives present here with me. Today we're joined by President and CEO, Kangra Zhong, CFO Kimu Hyun. Head of DRAM marketing Pak Jun Dock, head of net marketing Feng Chang So and head of HPM sales and marketing Tim Gite.

Let me issue a disclaimer that our third quarter results included in this conference call are consolidated figures and provisional in nature as the external auditors review has not yet been completed accordingly. They remain subject to change. In addition, forward-looking statements, including market outlook and the companies' plans may vary depending on changes in macroeconomic and market circumstances. With that, we will now begin SK Hynix earnings release conference call for the third quarter of 2026.

Before we begin the earnings presentation, CEO Panglu Zheng will first speak on the sole dime IPO and shareholder returns. Following this, CFO Kimu Jung will present third quarter earnings, the company's future plans and market outlook.

CEO Hong MO Zong

Good morning, everyone. This is CEO Hong MO Zong. I would like to express my sincere gratitude to our shareholders for your unwavering interest and trust in SK Hynix even amid the recent heightened market volatility. Today, I would like to speak directly to you about our decision regarding Solid IPO, which has recently attracted considerable market attention and a special dividend to share the returns on our strategic investment with our shareholders.

First, Solid IM has been exploring financing options to support initiatives such as expanding its manufacturing footprints to meet demand growth. Among the options considered, raising external capital through an IPO was expected to ease our investment burden and increase our capacity for shareholder returns. However, after carefully considering recent financial market volatility and the correction in semiconductor stocks, Solo Dime has concluded that an IPO would not fully deliver the anticipated benefits at this time and has therefore decided to discontinue its review of potential pre IPO and IPO options.

Solid Dime will continue to strengthen its competitiveness and pursue growth opportunities in the AI data center storage market. Investments and financing arrangements to support these efforts will be pursued in a manner that enhances the corporate and shareholder value of both Solid Dime and SK Hynix. We have upheld the principle of sharing the majority of the returns from our strategic investments with our shareholders by using those returns to replenish our capacity for shareholder returns, which may temporarily decline. As we invest for the future, we aim to protect our shareholders interests while continuing to invest boldly in sustainable growth.

In line with this principle, we intend to return the gains realized from our investment in Kiosksia this year to our shareholders through a special dividend. We will remain steadfast in this commitment, ensuring there are shareholders directly benefit from the success of our strategic investments. Our Chief Financial Officer will now present this quarter's results and outlook along with the details of our shareholder return plan. Thank you.

CFO Kimu Jong

Good morning, everyone. This is CFO, Kimu Jong. Allow me to first introduce the company's performance for the third quarter of 2026. In the third quarter, tight supply and demand conditions continue to due to growing demand for AI memory leading to sustained price in my memory prices. Both DRAM and NENS recorded high price increase rates for a second consecutive quarter, driven by continued price hikes centered on HPM server, DRAM and enterprise SSD.

Consequently, third quarter revenue increased by 32% quarter on quarter and 328% year on year reaching 104.6 trillion one. This marks the first time quarterly revenue surpassed 100 trillion one, setting a new record high for DRAM. We expanded sale centered on AI servers, achieving sequential bid shipment increase of approximately 10% as planned. In particular, full scale mass production and shipments of HPM 4 commenced in the third quarter. Additionally, shipments of server DDR5 increased by over 40% compared to Q2, driving overall growth in DRAM bit shipments with continued strength in conventional DRAM prices and an expanding sales mix of HPM 4, which commands higher prices in the prior generation.

DRAM ASP rose by high 20%, recording a high growth rate similar to the previous quarter. Fernand, although bit shipments decreased slightly compared to Q2 as we adjusted sales to focus on high value added products such as 321 layer TLC enterprise SSDs, ASP rose by mid 20% due to overall price strength and an expanded SSD mix. Despite unfavorable exchange rate effects due to the strong Korean won product price increases and the expanded sales of high high value added products led to an operating profit of 83.3 trillion won for the third quarter. This represents a 38% increase quarter on quarter and a 632% increase year on year. Operating profit margin also improved by three percentage points quarter on quarter to reach 80%, setting new all time quarterly records for both operating profit and operating profit margin.

In the third quarter depreciation and the more Expenses totaled 4.3 trillion one, EBITDA reached 87.7 trillion one with an EBITDA margin of 84%. Regarding major non operating items, foreign exchange related net loss of 11.6 trillion one due to exchange rates decline and valuation losses on investment assets of 22.9 trillion one were reflected resulting in total net non operating expenses of 32.6 trillion one. Consequently, income before tax was 50.7 trillion one, net income was 39.8 trillion one and net profit margin was 38%.

As at the end of the third quarter, cash and cash equivalents stood at 114.5 trillion one, an increase of 26.5 trillion one from the end of the previous quarter. Interest bearing debt decreased by 2.8 trillion one to 15.8 trillion one. As a result, net cash expanded to 98.7 trillion one and debt to equity ratio improved by two percentage points compared to the end of the previous quarter to 5%.

Next, I will discuss the market outlook. The AI market is evolving endlessly as AI leads to productivity improvements and new revenue generation in various areas such as software development, customer response and search. A virtuous cycle is forming where increased AI usage leads to further infrastructure investment. Such changes are evident in the scale of investment and the power capacity secured by major global cloud service providers. According to recent estimates from market research firms, global CSP CapEx is projected to grow by more than 60% in 2027, while secured power capacity is also expected to increase by over 100% year over year.

More notably, this growth will not stop next year. The global AI data center infrastructure market is expected to grow at a high annual growth rate of 40% until 2030. Driven by the commercialization of AI services and the expansion of application areas, this mid to long term growth trend is expected to continue. In particular, as AI plans complex tasks and carries them out over extended periods using multiple tools, AI compute requirements and the volume of data generated, transferred, and stored are rising sharply. Consequently, demand growth across the entire memory sector is significantly exceeding initial expectations.

AI infrastructure investment is now moving beyond the initial fee phase, which relied on preemptive spending by a handful of players as participation broadens to include more enterprises and national governments. Accordingly, even allowing for some potential investment adjustments, we expect proof in AI infrastructure investment to remain robust. In the short term, enterprise and personal AI are expected to lead demand growth, while in the mid to long term, physical AI such as autonomous driving and robotics is expected to broaden the scope of demand. While shipment volumes for PCs and mobile devices are expected to decrease due to cost burdens from rising memory prices and supply shortages, AI infrastructure demand growth is expected to more than offset this decline, sustaining growth in the overall memory market.

On the other hand, memory supply cannot keep pace with this level of demand growth. Thus, we expect it to be difficult to fully meet customers volume requirements in the near term. Given the complexities involved in implementing leading edge processes and the lead times required to construct new production facilities, a situation where supply cannot keep up with demand is expected to persist for some time. A constraint project projected to continue through 2030. Despite the high level of demand, considering actual supply conditions, achievable demand growth for 2027 is expected to be at a similar level to this year with growth rates of mid 20% for DRAM and high teen percent for NAND. We expect this favorable market environment to be a strong foundation supporting the company's earnings growth next year as well. Based on our expanded production capacity and competitiveness in high value added products, we plan to achieve results at a significantly higher level both in terms of absolute revenue and profit.

Next I will discuss the company sales plan for the fourth quarter and our future operational direction. In the fourth quarter, we plan to further accelerate supply expansion to respond more proactively to market demand. 1st, for DRAM production increases due to the expansion of 1C nanometer process and increased HDM four production through M15X ramp up will occur simultaneously. Consequently, fourth quarter shipment volume is expected to grow meaningfully by mid 20% sequentially. For conventional DRAM, we are rapidly increasing the portion of 1C nanometer products for server applications. In the fourth quarter, we plan to further strengthen our portfolio centered on high value added server products by expanding sales of 1C nanometer based DDR5 and AI server LPDDR 5.

So Cam. Our shipments of 12 high HDM four are proceeding smoothly according to the schedule agreed with our major customers. To actively respond to surging customer demand, we're accelerating N50 next ramp and plan to reach full capacity by the end of the year. Accordingly, in the fourth quarter, HBM 4 is expected to surpass HBM 3 E in both its share of total HBM shipment volume and revenue, establishing it as our flagship product. The company has finalized negotiations with major customers for next year, including HBM volume and prices. These negotiations faithfully reflect the increased product value of HBM 4. As a result, we expect the profitability gap between HBM and conventional DRAM to narrow meaningfully.

For NAND, we plan to expand the portion of our flagship 321 layer process to over 50% of domestic capacity in the fourth quarter. Through this, we will expand the supply of 321 layer enterprise SSDs and fourth quarter NAND fish shipments are expected to increase by mid single percent sequentially. Building on the supply extension, we plan to further broaden the role and business opportunities of MEND in the AI infrastructure market. We will expand the supply of high performance, high density enterprise SSDs through different KD cash steering. In the mid to long term, through HBS and system optimization technologies, we aim to evolve MEND into a core solution that enhances AI service throughput and cost efficiency.

To improve visibility into mid to long term demand and secure a stable growth foundation, we're continuously expanding long term agreements with customers. To date, we have signed Ltas with 14 key customers including major global CSPS. While Lpas typically operate on a five year basis, we are proactively discussing extension of existing contract periods with some customers. The fact that customers are requesting longer term collaboration based on our product road map and supply capabilities indicate that Lpas are evolving to strengthen customer relationships and business continuity. While pricing structures vary by customer and product, they are generally designed to reflect market conditions within a price range agreed upon with the customer. Furthermore, to ensure that customers purchase plans lead to actual orders and shipments, we have included safeguards such as deposits. This structure not only supports our stable profitability, but also allows us to capture opportunities from market improvements by reflecting improvements in market prices and product value.

The volume secured under Ltas currently account for more than 50% of our total capacity for 2027 and 2028, establishing a foundation for mid to long term profit stability and demand visibility. Meanwhile, to respond to mid to long term customer demand and growth opportunities, we are continuously pursuing investments to expand production capabilities. We expect capital expenditures in 2027 to increase significantly compared to 2026. We invest in equipment to expand the share of leading edge processes and ramp up our first fab in union, while domestic and overseas infrastructure investments accelerate the scale and execution timing of investment will be determined by considering mid to long term demand visibility, secure through customer discussions, product competitiveness, profitability and investment efficiency.

Finally, let me explain shareholder returns. Last August, we announced the shareholder return plan including forty trillion one of share acquisition and cancellation and indicated that we will provide details on the size and method of additional shareholder return in the third quarter earnings call. Today, let me provide an update on the implementation of that plan and outline additional shareholder returns that reflect our improved business performance and investment investment results. The company has decided to pursue shareholder return of approximately 100 trillion one for the 2026 fiscal year. We plan to execute cash dividends of 30 trillion one or more and share acquisition cancellations of 60 trillion one or more, including the 40 trillion 1 announced in August. Of this, the 40 trillion one share acquisition was completed last week and will be cancelled shortly through dividends. We will directly share the results of our earnings with shareholders and continuously acquire and cancel shares to ensure that the per share value appropriately reflects our intrinsic value. Through this, we will fulfill our promise to return over 50% of free cash flow to shareholders.

Today, the Board of Directors resolved on cash dividends of 14 trillion won and a share acquisition of 20 trillion won. Of this treasury shares to be utilized for executive and employee compensation is expected to be approximately 10 trillion won. Excluding this, shareholder return for the third quarter is approximately 24 trillion won. I will now provide details on each. First, we are expanding cash dividends to reflect earnings improvement and investment results. We will determine dividend levels based on operating performance and in cases where substantial investment gains occur, we will share those results additionally with shareholders through special dividends. We will utilize the results not only from the proof of our core business, but also the realization of value from our invested assets as a source of shareholder returns. Accordingly, dividend for third quarter has been decided at 20,001 per share totaling 14 trillion one. This consists of a 10,001 dividend reflecting earnings improvement and a 10,001 special dividend to share the investment results from Kyoxia. We plan to return most of the gains from our investment in Kyoxia to shareholders through a special dividend. A portion will be paid as part of this quarter's dividend with the remainder included in the year end dividend once our financial results for FY20 26 have been finalized.

2nd, we will continue to acquire shares each quarter. The size of quarterly share acquisition will be determined through board resolutions that consider share price, market conditions and cash flow. This quarter, we plan to acquire a total of 20 trillion one of shares. Of this 10 trillion, one is acquired for shareholder return purposes will be cancelled in full. The 10 trillion 1 acquired for executive and employee compensation purposes, as mentioned earlier, is not included in the 2026 fiscal year shareholder return amount. Moving forward, based on robust memory demand growth and the company's technological competitiveness, we will generate results in a stable manner and consistently share them with shareholders. Thank you.

Operator

With that, we're now ready to take your questions. Now Q and A session will begin. Please press *1. That is * and 1. If you have any questions, questions will be taken according to the order you have pressed the number *1. For cancellation, please press *2. That is * and 2 on your phone. Then she take a little bit, you said, Tony. The first question will be provided by Peter Lee from Citigroup. Please go ahead. With your question.

Peter Lee from Citigroup

I. Congratulations on the performance. And my question is with regards to the AI investment. Now we see that the AI investment continues to grow and but then it seems as if the monetization following the AI demand or the AI infrastructure build out is slow to be realized. So as a result, there are some concerns in the market over the sustained AI demand. Then against this backdrop, my question is, what is the company's basis for believing that the AI investment momentum will continue?

Executive

None. Thank you for the question. Now we do understand that there is some discussion about pacing investment in AI, but we view this as part of the process where our customers are more closely examining the feasibility and profitability of individual projects and defining the timing and pace of investment. There are two main reasons behind our view that the AI investment momentum will continue. I. 1st, we are seeing customers AI investment actually leading to greater adoption of AI services and producing business results. I. In their latest earnings release, major hyperscaler customers reported YOI growth of 30% to 80% in their cloud revenue, a substantial portion of which we believe is coming from expansion of their AI. Business. We are seeing more long term contracts for large scale enterprise AI solutions as well. While cloud order backlogs have grown twofold to fivefold YOY, paying users are steadily increasing as well, confirming growth in major customers, AI related sales and financial performance. Across multiple areas given this trend. Customers, AI sales and cash flow will only improve, which will also help ease the current market concerns on investment burden. At the same time, customers are working at various. Angles to ease current constraints such as multi site deployment, small or mid sized data Centers for which power is more readily available, and upgrading on site power generation and cooling technology. Will help ease the investment burden. Second reason is that the investor base is becoming structurally more diverse. None. Yeah, early AI. Investment was concentrated among the big tech, so a single company adjusting its investment could directly result in overall demand volatility. But today the investor base is rapidly broadening also including non tech companies investing in their own AI infrastructure, sovereign AI or on Prem demand. This marks a structural shift where investment adjustment by some would be offset by increased demand. From others for example. Even if investment in some projects slows due to interest rate pressure, policy backed sovereign AI investment or a broader corporate AI adoption can still fill the gap with a multi layered structure involving diverse participants with different motivations and resources. Any single company's financial capacity or investment moderation affecting the. Investment trend is becoming limited. In sum, AI investment and demand intensity will remain sufficiently robust, supported by real business result and more diversified investment. Also in the memory market, we expect the current structural supply demand imbalance, where demand outpaces supply to continue for the time being. Contamination shot.

Operator

The following question will be presented by Sinu Kim from Merritt Securities. Please go ahead with your question.

Sinu Kim from Merritt Securities

Yeah. Thank you. I would also like to congratulate. The company on the outstanding performance and I would like to especially thank the CEO, Wang Ma Zhang for the briefing on the company's update. Now my question is with regards to the shareholder return. Now, what is the basis for the company to determine the proportion between the dividend payout and share acquisition out of the total shareholder return?

Executive

I. Thank you very much for the question. Now for us, we sought to balance between cash dividend and share acquisition and cancellation or meaning between the direct way of sharing our improved performance with shareholders and raising the value per share by reducing the number of outstanding. 1st we decided. On cash dividend at a level that will be sustainable for this reflected our performance improvement as well as our historical dividend yield, global peers dividend yield and appropriate level of cash holding. I and we also plan to. Is there any meaningful return on our investment when it arises, namely the return on our investment in Kiaxia? Now most of it will be paid out in special dividend so that it can be actually felt by our shareholders. Although we have yet to close the books for this year, we decided that. Would be meaningful to share at least part of the expected returns with our shareholders first? So part of the special dividend will be paid out early in the third quarter and the rest will be included in the year end dividend after finalizing the return on investment. I. Young gun. After the cash dividend, the rest of the total shareholder return is allocated to share acquisition. We believe our share price today is undervalued, not adequately reflecting our earnings and cash flow. That is why we decided that share acquisition and cancellation would be an effective way of raising the per share value. The acquisition will continue every quarter within the annual size and the size of the quarterly acquisition will be determined by the Board of Directors considering such factors as the share price, valuation, cash flow and so forth. I. Going forward, we will faithfully implement our shareholder return policy based on our robust cash generation and we remain committed to continue to enhance our shareholder value. Thank you very much.

Operator

We'll take the next question. To. The following question will be presented by Junie Lee from Goldman Sachs. Please go ahead with your question.

Junie Lee from Goldman Sachs

On the outstanding performance and my question is on the LTA, so it was explained earlier that the currently the volume secured through the Ltas is about 50% of the volume for of the total capacity for the 2027 and 2028. So what would it mean for the company's performance and potential for? Growth in the longer term.

Executive

Thank you for the question. By increasing LTA coverage, our goal is to improve longer term demand visibility, which can lead to stable. And earnings growth? Volume already secured under Ltas and the demand currently being discussed with customers taken together means that our DRAM and HBM volume for the next three years through 2029 are. Sold out. The volumes under discussion are. Based on customer's concrete purchasing plan and are highly likely to come through. Overall, we believe our medium to long term sales visibility has significantly improved. Earlier, the volumes committed under Lt. as account for more than 50% of total capacity in 27 and 28 and we plan to keep it. Similar over the medium to longer term. This arrangement will help us secure a reliable earning space. At the same time, we can utilize the non LTA capacity to flexibly respond to market conditions and demand for next generation products to keep strengthening our future competitiveness.

Operator

単純の値、重症、センキュー、ネクスト、ファッションプリンス I. The following question will be presented by Simon Wu from Bank of America. Please go ahead. With your question,

Simon Wu from Bank of America

yeah. We. No. My question is with regards to possible overproduction and that is because there have been some challenging cycles in the past. So the question or the concerns over possible overproduction come from the fact that now because of the very strong market demand that is continuing, Hynix continues to build either new fabs or build out or upgrade existing fabs, including the ones in Union. So then what if demand were to fall short of expectations, then what would be the company's strategy or the management's plan against it? And I would also like to congratulate the company on the excellent performance as well as the very detailed shareholder return plan.

Executive

Yeah. I. Thank you for the question. Now, it is true that the company is currently pursuing medium to long term investment to accommodate the strong demand and secure. Enough space for the equipment and production needed for tech migration. But more investment or more fabs does not necessarily mean more supply. I. Today. With the rising share of high performance products like HBM and increasingly complex processes, more resources are needed for production. But increasing bit output with finer technology is becoming more and more limited. So our investment today is not only to expand production capacity, it is also intended to build the production base that is needed for a. Migration. And expansion of high value add product lineup today. I. Our. Investment will be executed in stages. The foundational infrastructure will be ready. In advance for medium to long term demand, but the key resources. Needed to increase supply such as equipment moving and mass production ramp up will be adjusted in line with demand. For example, for new fabs including the Yoning cluster and M17, we plan to accelerate construction of the shelf structure, but clean rooms will be opened. Phases. This approach is specifically intended to allow flexible operation. In the future, sure. And when assessing demand, we don't just. Customers CapEx or demand forecast, we also review their financial health and funding capability as well as the readiness of key supply chains before reflecting this in our investment plan. I. Our own financial soundness is also an important parameter while maintaining sufficient financial room. In light of our medium to long term net cash target and appropriate cash holding, we will manage the scale and pace of investment based on demand visibility and investment returns. I. So to sum up, we will prepare our medium to long term supply infrastructure as planned based on improved demand visibility, but actual production capacity will be ramped up only in line with demand and profitability. If conditions do differ from our expectations, we will make sure to respond to any risks by flexibly adjusting our investment disbursement, production plan and resource allocation. Thank you.

Operator

We'll take the next question. I. The following question will be presented by Jay Kwan from JP Morgan. Please go ahead with your question.

Jay Kwan from JP Morgan

Software for HP. Congratulations on the good performance and thank you very much for taking my question. Now the HPM 4 supply was I mentioned earlier, but then I would like to get an update from the company on the specifics of the HPM 4 Supply. And also can you also share your plan for the follow-ups, the HPM 4E and custom? HPM.

Executive

Thank you very much for the question. Now, as mentioned earlier, HBM 4 is expected to crossover HBM 3 E in the fourth quarter in both bit shipment and revenue share thanks to mass production procedure. Without disruption. I. The yield is also quite stable. The company is maintaining industry best level yield and both our fabs and back end processes. In particular, our back end yield refers to the entire process, not just individual steps like bump stack or KGST test. On this basis, HBM 4 already exceeded its planned yield, so the target was revised up. HBM 3 E has also surpassed the planned mature yield. I. For now, we are focused on maximizing productivity to meet strong customer demand. Our performance in the HBM business will once again demonstrate our unparalleled competitiveness. I. And of course we are also steadily preparing for next generation products. For example, for the HPM 4 E, we already completed sample shipment in the second quarter. Development and qualification are moving ahead in line with customers time. And looking further ahead? In addition to stable supply of standard HBM, we are seeing growing importance of custom HBM which is optimized for each customer's system and workloads. So we are working closely with major customers on related projects. I. As the first supplier to our key customers, we will keep growing our HBM business, drawing on proven product competitiveness and reliable mass production. Thank you.

Operator

Next question, the following question will be. Presented by Donghi Han from SK Securities Please go ahead with your question.

Donghi Han from SK Securities

Thank you for taking my question, which is. It is also on the HBM, particularly on the possibility of lowering the HBM stacks. So what is the company's view on this possibility of having shorter HBM stack and what would be the potential impact on the HBM business including HBM shipment and profitability?

Executive

Yeah. Thank you for the question. Now, the recent moves by some customers to adjust HBM specifications illustrate that demand is indeed overwhelming supply. With HBM supply remaining constrained, customers need to build more AI accelerators and systems using limited quantity. So we see the stack lowering as a strategy to increase the number of cubes that can be obtained for the same capacity. Come on. Having said that, lower stack does not necessarily mean a proportionate decrease in HBM capacity. Even if it goes from 12 stack HBM 4 to H stack HBM 4 E, the increase in capacity per die can offset A substantial part of the impact. You. So even when considering such adjustment or medium to long term HPM demand outlook remains unchanged. Demand remains so strong that customers volume requirement is more than double that of what we can supply today, which is also indicative of customers continued. Strong preference for our products. And neither the supply side will be affected. Supplying the same bid volume with lower stacks requires more cubes, which in turn increases the need for base size and back end processing. We already incorporated this into our production and supply plan and we will implement our HBM shipment and supply as planned. I. HPM the tuba Eagan already they. As for profitability, it is not determined solely by the stack count. There are a combination of factors like terms of trade for each product, product mix, yield, back end productivity and cost. Next year, share of HBM 4 and its price will increase, while mass production yield and cost competitiveness will further improve, making it likely that HBM revenue and profit grow significantly YY with meaningful improvement in profitability as well. With me. And looking ahead, profitability is expected to remain high, far above the peak in past cycles. Thank you.

Operator

Next question. The following question will be presented by Young. Kim from Murray Asset Securities. Please go ahead with your question.

Young Kim from Murray Asset Securities

I. Congratulations on the record performance. Now my question is on the 4F square And we see that other companies are also working on new cell structures and next generation DRAM technology which is heightening interest in long term technology competition. So is there an update on the preparation for the 4F Square and what is the company's areas of development focus to strengthen our technological competitiveness, the children?

Executive

I. Thank you for the question of the 4F square is A next generation DRAM technology that increases density with a smaller cell area than 6F square and the applicability and strategy would depend on each company's scaling capability, process environment and cost structure. I. Now for the company, our development plan is to utilize the 6F square structure to the extent possible through process maturity and stable tech platform, then transition to 4F square or 3D DRAM platform. I. Through the EUV based scaling and process innovation, we have secured the technological ability to further extend our current 6F square platform. So at this point, we believe that the most efficient strategy for the company is to strengthen our product competitiveness by making the most of a platform whose mass production reliability and cost competitiveness, cost competitiveness have already been proven. I don't. To apply a new cell structure into the. Products we must secure not only performance, but also yield reliability and cost competitiveness. Not only that, the product design and customer qualification must also be completed. This is why the timing of technological development and the timing of commercialization are. Think from each other. We are preparing a step by step road map covering from the extreme scaling of the existing DRAM to 4F square and 3D DRAM. Each technology will be applied to the right product at the right time, the right time meaning when it is ready technologically and economically. We will keep drawing on our process and design capability, production experience and customer cooperation and sustain our technological competitiveness in next generation DRAM by combining performance, cost efficiency and producibility.

Operator

Yeah, Bajimak team and Baturo Karishmila. Thank you. We'll take the last question. The last question will be presented by Yang Ho Ryu from. Investment and securities, please go ahead with your question.

Yang Ho Ryu from Investment and securities

Thank you for. For taking my question, which is on NAND now we see these days that the size of KV cash is growing rapidly and now there is also work underway to store and reuse it across multiple memory tiers. So how does the company expect this to affect future NAND demand and what type of preparation is being made?

Executive

Thank you for the question on NAND. Now, as agentic AI and long context use cases spread, the size of KV cache is growing rapidly, making it difficult to store it all in HPM or DRAM due to capacity and cost constraints. As a result, a tiered memory architecture is becoming increasingly important, which distributes data across HBM, DRAM and SSD, according to Access. And this is expected to create new demand for NAND to store and reuse the context needed for AI inference. SSD is already being used in some AI systems to offload KV cache and we believe it's role will expand into the context memory tier that allows multiple servers and GPU's to share large scale KV cache. And in response to this opportunity. The company is developing memory cheering technologies, including the semantic aware life cycle tearing for KV and CNM High. SALTK V. Is a software technology that optimizes data allocation across HPM, DRAM, and SSD by assessing the reuse value and storage cost of each KV cache. CMM Hybrid is a C XL based hybrid memory technology that stores the entire KV cache on SSD. It then predicts which data is likely to be needed and preloaded into DRAM. I AI system architecture. And more recently, through system demonstrations based on actual AI workloads, we are defining the applicability and performance requirements for ESS DS in real inference environment to make it ready for adoption in our customers and platform partners architecture. And for the medium to longer term, we plan to address the new memory tier between HBM and SSD using HBS, which combines high bandwidth with NAND, high capacity and cost efficiency. By pre empting the new NAND demand opportunities arising from changes in AI system architecture, we will sustain growth in our NAND business.

Operator

上面的 Thank you for the answers and due to the time. This brings us to the end of the Q&A session. We will conclude the SK Hynix third quarter 2026 earnings release conference call with the CE OS closing comments.

CEO Hong MO Zong

Now we have delivered. Results for six consecutive quarters. But what we find more significant is that the underlying business environment is changing. The customer trust that we have built through our technological leadership is translating into long term agreements, giving us greater medium to long term demand visibility and a stronger foundation for sustained profitability. This means that the potential for a new phase of growth that is distinct from the past is manifesting through concrete changes in our business structure. Our task now. Is to turn these changes into lasting competitive advantage. We will extend our current leadership in memory, including in HBM to next generation products and become the first partner that customers turn to as they prepare for the future. We will translate market opportunities into results and further strengthen our ability to sustain that performance. And as our business grows and our investments deliver returns, the rewards we share with our shareholders should also increase. The shareholder return plan announced today reflects this principle. Proto 's. We will continue to build confidence in our future growth through sustained performance and by sharing the rewards with our shareholders. Thank you very much for your continued. Interest and support that concludes. Closing remarks and the earnings release conference call. Thank you very much.

Details at SK hynix IR

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