Edited Transcript of 000660.KS earnings conference call or presentation 23-Apr-20 12:00am GMT

Icheon May 17, 2020 (Thomson StreetEvents) — Edited Transcript of SK Hynix Inc earnings conference call or presentation Thursday, April 23, 2020 at 12:00:00am GMT

SK hynix, Inc. – CFO

* S. K. Kim

Daiwa Securities Co. Ltd., Research Division – Research Analyst

[Interpreted] Good morning, and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2020 first quarter earnings results by SK hynix. (Operator Instructions)

Now we shall commence the presentation on the fiscal year 2020 first quarter earnings results by SK hynix.

[Interpreted] Good morning, and good afternoon and evening to those calling in from abroad. This is Park SeongHwan, the Head of IR at SK hynix. Welcome to the SK hynix 2020 First Quarter Earnings Release Conference Call.

Before starting the conference call, allow me to introduce the executives present here with me today. First, CFO, Cha Jin-Seok; Park Myoungsoo, in charge of the DRAM Marketing Group; and Kim Yong Tak, in charge of the NAND Marketing Group.

Let me issue a disclaimer that all outlooks presented by the company are subject to change, depending on macroeconomic and market circumstances.

With that, we will now present our quarterly earnings, future plans and market outlook.

Jin-seok Cha, SK hynix, Inc. – CFO [3]

[Interpreted] Good morning. This is the CFO, Jin-seok Cha. I will first report on the company’s financial performance in first quarter 2020. Consolidated sales in the first quarter was KRW 7.199 trillion, up 4% from the previous quarter. Sales grew despite the rapid changes in the market environment from COVID-19, with shipment increase in server memory focused products and continuously favorable price environment. DRAM shipment declined by only 4% from the previous quarter, reaching the top of our guidance range. Mobile DRAM shipment was hit by seasonality and the impact of COVID-19, but this was offset by server DRAM shipment growth, where demand stayed strong. ASP rose 3% Q-o-Q, with server DRAM leading the price increase. NAND Flash also showed a similar demand trend to that of DRAM. For NAND shipment, the company significantly increased server SSD volume support, backed by favorable demand conditions, and SSD sales portion out of NAND reached 40%. This led NAND shipment growth of 12% Q-o-Q, which is better than typical seasonality. ASP rose 7% from the previous quarter, as solid price trends continued for major applications.

For MCP, sales grew 2% Q-o-Q, and sales portion was maintained at 19%. Decrease in shipment was offset by rise in price. From a profit perspective, thanks to yield progress of 1Y nano DRAM, 96-Layers NAND, and also efforts to cut manufacturing costs profitability improved in all applications. In particular, NAND profitability was meaningfully enhanced. The rapid increase in SSD sales portion improved in cost efficiency, which brought down the cost reduction per unit, and inventory valuation loss was reversed following price increase. Accordingly, operating profit in Q1 was KRW 0.8 trillion or KRW 800 billion, up 239% from the previous quarter, and operating profit margin was 11%. Depreciation and amortization in the first quarter was KRW 2.307 trillion, slightly up from the previous quarter, and EBITDA was KRW 3.107 trillion with EBITDA margin of 43%.

There was a net nonoperating profit of KRW 128 billion, in recognition of foreign currency-related gains as the Korean yuan depreciated at quarter end. Corporate tax in the first quarter was KRW 279 billion and net profit after tax was KRW 649 billion with a net profit margin of 9%.

Consolidated cash balance at the end of the first quarter was KRW 4.742 trillion, up approximately KRW 0.747 billion from the previous quarter. While interest-bearing debt was KRW 12.416 trillion, up by KRW 1.892 trillion. Debt-to-equity ratio was 26% and net debt-to-equity ratio was 16%.

Next, I would like to update you on the company’s measures in response to COVID-19. The company put together a task force in mid-January when the spread of COVID-19 became known to make our best efforts to protect the health of our global team members, partner companies and local communities while maintaining business continuity. First, the company implemented an action plan for its members in accordance with the risk level in epidemic prevention measures, which include broad and preemptive self-quarantine, containment efforts, mask wearing, discouragement of business travel and in-person meetings, and granting special leave to pregnant employees or employees with underlying diseases. The company is strictly complying with recommendations from authorities in each country and region of operation and thus, some team members in overseas branches are working from home accordingly. Thanks to active participation from global team members and efforts of the company, all fabs in Korea and China are maintaining normal operation. However, given the different degrees of proliferation of COVID-19 in each country, there could be possible disruptions in production, sales or development schedule of our partners and customers, depending on the duration of travel restrictions. In order to minimize any potential impact, the company is in close discussion with both partners and customers. To overcome these hard times together, the company is currently running support programs for partner companies and local communities. The company has donated protective masks to partner companies and community groups who need aid, emergency kits to 10,000 health care, and volunteer workers in critical areas and have stepped forward with programs to help revitalize local businesses.

For partner companies out of the existing KRW 370 billion collaboration fund designed to help SME’s competitiveness, the remaining usable KRW 130 billion will be fully provided to partners affected by COVID-19. Also, the company’s payment cycle to partners will be made more frequent to help their cash flow from the current 3x a month to 4x a month.

Next is the company’s market outlook and plan. The unexpected proliferation of COVID-19 is causing unprecedented uncertainties in overall global IT demand and supply chain. Because of this, slowdown of global smartphone sales seems to be inevitable. Global smartphone shipment which was originally expected to increase Y-o-Y with the launch of 5G supporting smartphones, leading replacement demand is now projected to show more decline than the previous year. However, given the recent signs of recovery in manufacturing and economic activities in China and the expectation of active support measures to promote 5G demand, there still seems to be possibility of partial improvement of smartphone sales in the second half. Whereas, PCs and game consoles have been affected by manufacturing disruptions in the Asian region, demand for PC DRAM, graphics DRAM and PC SSDs remain sound with growing IT needs for stay-at-home activities, such as online education, remote work, video conferencing and online entertainment.

The server segment is relatively resistant than other applications toward demand risk from COVID-19. Customers’ component inventory level has decreased compared to the previous year. On top of the real demand improvement from investment resumption by large-scale internet data center customers, incremental demand is occurring from streaming services and remote work support caused by COVID-19.

In fact, the current situation is likely to accelerate the momentum for server led memory growth over the mid- to long term as more people experience remote working systems, and governments and companies speed up the deployment of cloud-based systems. Having said that, things remain highly uncertain with no telling of when COVID-19 will subside and global economy can reboot. If the economic downturn is prolonged, we cannot dismiss the possibility that even server memory demand might weaken. And from the supply side, disruptions could occur in equipment and raw material procurement or logistics hindering normal production activities.

Even amidst the uncertainties, the company will focus on strengthening core competitiveness and preparing for potential demand fluctuation. Therefore, CapEx this year will be considerably lower than last year as we guided early this year. Equipment related CapEx also to be lower than last year, will be mostly for tech migration. Infrastructure investment will be focused on construction of M16, and we plan to complete the preparation of the cleanroom by the end of the year. Conversion of M10 DRAM capacity to CMOS image sensor and also the non-wafer capacity conversion to 3D will continue as planned, which will reduce our wafer capacity compared to the beginning of this year. However, we are aware that some equipment partners are facing difficulties in maintaining normal operations or securing core parts due to the movement control order in some countries.

This can increase the possibility of potential delay of equipment installation compared to our original schedule. The company will address this in multiple directions as much as possible to prevent disruptions to our existing investment and production plans. For DRAM, the company plans to actively respond to the accelerating demand for high-density server modules with 64 gigabyte and above by focusing on production of 16-gigabit products. We will also continue to improve our profitability by increasing sales of 1Y nanometer based mobile DRAM products. With the start of 1Z nanometer mass production in the second half, we plan to generate a combined bit portion of 1Y and 1Z nanometer over 40% by year-end.

In addition, with active support of GDDR6 and HBM2E markets, which are expected to take off this year, shipment bid growth for Graphics DRAM is planned to increase by more than 50% compared to the previous year. For NAND, we plan to increase the bit portion of 96-layer products to over 50% and begin mass production of 128-layer products within the second quarter, an expected combined bit portion of both 96- and 128-layer products to exceed 70%. In particular, we will further expand our SSD sales mix, focusing on PCIe-based data center SSDs, together with enhancement of our product and customer portfolio, and continue to improve profitability in our NAND business.

For the second quarter, SK hynix is planning to generate flattish bit shipment growth compared to the previous quarter for DRAM and around 10% of bit growth for NAND considering the trend of weak smartphone demand and relatively solid server demand will continue. As the company’s DRAM and NAND inventories return to normal levels by the end of first quarter, we will actively utilize this factor in case of unexpected demand decline. And considering this unprecedented uncertainty in supply-demand dynamics brought by COVID-19, we ask for your understanding that we cannot provide annual shipment plan at this point in time.

In our previous earnings release in January, we mentioned higher complexity and uncertainty level in the market are today’s new normal. And because of a never experienced pandemic, even basic business activities such as maintaining normal operations and predicting future demand have become challenging tasks. But when COVID-19 recedes and anxiety is relieved, we anticipate that natural recovery will follow. At that time, 5G and server led memory growth, which remains valid even today, could become even stronger and quicker. The company will thoroughly prepare to minimize the risk of uncertainties expected to remain for the time being. We will put our best efforts to be ready for 5G and server led memory growth to realize momentum when the business environment returns to normal through technological innovation and well supportive infrastructure.

Let me conclude the presentation by wishing everyone’s good health. Thank you.

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Unidentified Company Representative, [4]

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[Interpreted] And with that, we are now ready to take your questions.

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Questions and Answers

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Operator [1]

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[Interpreted] (Operator Instructions) The first question will be provided by Peter Li from Citigroup.

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Peter Li;Citigroup;Analyst, [2]

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[Interpreted] Now I have 2 questions. Now first is about COVID-19, which was, yes, indeed unexpected. But now I do suspect that it has also changed the demand situation as well. So what are the changes that you see in terms of demand for both DRAM and NAND? And the second question is, recently, there have been reports of the company’s new fab and M16, so the Wuxi new fab and M16 going into early operation, so could you give us an update on the Wuxi new fab as well as M16? And what is the company’s plan for memory investment this year?

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Myoungsoo Park;Head DRAM Marketing, [3]

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[Interpreted] This is Park Myoungsoo from DRAM Marketing, and allow me to take your first question. Now given that the global economy is now seeing heightened uncertainties from COVID-19, it is also difficult for both the customers and the company to project the demand. With many countries around the world now projecting negative GDP growth for the year, and also because of the differences in the spread of COVID-19 in each country, we don’t even know when the different countries will be bottoming out in terms of their economy. Some are expecting it to happen in the second quarter, some as late as the second half of this year. So this means that it depends on the country-by-country economic recovery as well as the demand recovery from the different customers for us to actually see the demand bottoming out. And this also means that the demand trend is likely to be different by application for the time being.

In terms of set shipment, the smartphone is expected to see negative growth this year. So obviously, this would also affect the demand for NAND and mobile DRAM. So for both the NAND and mobile DRAM demand, we believe that in the first half, it is going to be lower than we had initially expected. And now for the PCs, now because of the heavy reliance of the supply chain in China, now in the first quarter, because of the lockdown in China, the set build had gone down dramatically. But then now, we are seeing things going back to normal in the second quarter. And then for server products, of course, this would also be somewhat affected by the economy in general, but at the same time, with the COVID situation, changing the way we live and the way we work, it is also raising the needs and demand for non face-to-face contact and activities.

So for example, online education and working from home and online conferences, online entertainment. And this is also requiring more data usage than ever before. And also more companies and public organizations are now trying to build out their infrastructure. So on the other hand, this is also a boom for some of the server cloud companies. So based on all this, now as was the guidance in the second quarter, for both the DRAM and NAND, the PC and server memory demand for the short-term remains little changed. Now down the road, the demand for the — in the second half. So in terms of the demand in the second half, of course, this would largely be determined by how or whether the market can resume globally at that time. So depending on the situation, the company is trying to strengthen our response and planning so that we will be able to come up with immediate and flexible response whenever the situation changes.

And to your second question about the Wuxi fab and M16. Now for Wuxi fab, as you would know, we have done the build-out last year, and equipment was being moved in, and we have — so the equipment continues to be moved in with the operations starting. So it is on track of our schedule, and for M16 as well, work is still underway to complete the cleanroom by the end of this year. So that is also moving on pace of our schedule. So to sum it up for both the Wuxi and M16, they are all on schedule, so on pace with our original schedule, and we have not planned for any pull up of the operations compared to the original schedule.

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Operator [4]

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[Interpreted] The next question will be provided by S.K. Kim from Daiwa Capital Market.

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S. K. Kim, Daiwa Securities Co. Ltd., Research Division – Research Analyst [5]

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[Interpreted] Now my first question is about the inventory level. The CFO in his presentation did mention that by the end of the first quarter, the company has seen its inventory level go back to normal. Then for both the DRAM and NAND, what is the inventory level now compared to what you would call the normal level? So basically, what is the inventory level now? And for the mobile server OEMs inventories compared to the normal level, where are they standing at this point? And also, do you see that there can be further improvement in the inventory in the second quarter? And second question is about mobile.

So it appears that the order reductions have already started from the Chinese mobile customers. And now it seems that it will continue into the second quarter. Do you see this affecting the pricing as well as the supply and demand situation? And also, there are concerns that the introduction or the deployment of 5G will be delayed. And also regarding the 5G smartphone market. Of course, there are some differing views, but then still, with the expectations of the 5G phones to be newly launched, there were expectations that these 5G phones would also be adopting 6 gigabytes. Now so what do you see as the mobile demand for 5G down the road?

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Unidentified Company Representative, [6]

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[Interpreted] Now first, regarding your question about the inventory level. So first, in response to the question on DRAM. Now the company’s inventory — as for the company’s DRAM inventory level, will continue to remain healthy as we move from the end of the first quarter to the end of the second quarter. So by the end of the second quarter, we expect the DRAM inventory level to be even lower than the first quarter end level, so down to the early 2-week level. And regarding the mobile server customers’ inventory level, now it would also depend on the situation. So it would also vary by company, but we see that overall, there has been slight increase. And the company’s NAND inventory level was also back to normal by the end of the first quarter to below 4-week level, and we expect this to drop even further by the end of the second quarter as sales increase.

And to your second question about the weakening demand for smartphones and also the outlook for 5G smartphone demand. Now first of all, for the second quarter, we see that there would be a little impact because most of the discussions have been completed in terms of the pricing and volume with most of the customers. Now for the year, smartphone is expected to show negative growth y-o-y, but we do expect some pickup in the second half of this year compared to the first half, and we will try to have flexible operations by the different situations per customer.

Now for 5G phones, the initial expectation was 200 million units of sales. But then in the first half, you see that sales were sluggish. And of course, this is going to have an impact for the year as well. Now having said that, the extent of the drop is not as precipitous as the 4G smartphones. And as the Chinese economy going back to normal, and we also see some of the smartphone companies trying to make efforts to further boost sales, so we also expect that the fall in the 5G smartphone sales compared to the expectation might be lower than expected.

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Operator [7]

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[Interpreted] The next question will be provided by Ricky Seo from HSBC.

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Ricky Juil Seo, HSBC, Research Division – Analyst, Semiconductor/OLED [8]

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[Interpreted] Now my first question is about your margin in the first quarter, which is actually much higher than expected, and you did mention some of the reasons behind it, but could you elaborate? So for example, is it because of the rising portion of the 1Y nanometer in DRAM? Or is it because of the higher-than-expected portion of 96-Layer in NAND? And also, you talked of the inventory — the reversal of the inventory valuation loss. So what was the value of this reversal? And also when was the breakeven point reached for NAND? And the second question is about the PC DRAM portion today because now we see that the demand for PCs is now growing in China and Korea. And it appears that there is similar expectation for the regions of U.S. and Europe. So once the lockdowns in these regions are eased, then it appears that there are expectations that their PC demand will also grow. So what is the company’s view for PC demand in the second half? And how much of an impact do you see this will have on the pricing?

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Unidentified Company Representative, [9]

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[Interpreted] Now regarding your question about the profit margin in the first quarter. Now to this question, actually you have already answered your own question. But anyway, so now why the profitability was much improved in the first quarter? Yes, the 1Y nanometer and also the 96-Layer products, the yield has much improved. And also, we were able to reduce the cost considerably. And also, there was an increase in ASP across all product categories. So for NAND, in particular, because of the rapid increase in sales, we were able to reduce the unit cost quite a lot. And also the reversal of the inventory valuation loss, the effect of this was about KRW 180 billion in the first quarter. On top of that, there was also the exchange rate effect. The exchange rate rose in the first quarter. So we believe that this had the effect of adding about KRW 70 billion to our operating profit in the first quarter. So to sum it all up, there was improved yield for 1Y nano and the 96-Layer product and also improvement in the production efficiency as well as the reversal of the inventory valuation loss.

Now as for the demand and supply, now because of the rapid changes these days, it’s very difficult for us to make any predictions, but now if the trend were to continue as such, then we believe that by the fourth quarter of this year. We will be able to reach the breakeven point for NAND.

And now regarding your second question. Now the PC demand. Now in the second quarter, yes, there have been increase in the volume requested by the customers for education and home PCs in the second quarter and the third quarter. So this is because of the rising demand for Chromebooks and Ultrabooks because of the COVID-19 situation. And now in the second half, if the back-to-school demand were to be added on top of that, then yes, it is highly likely that there is going to be a very positive impact for PCs demand overall. And now — so in order to respond to this, the company is planning to increase the supply of DDR4 for onboard as well as the LPDDR. And as for the sales portion for PCs, for the year, we expect this to be around mid- to high-teen level, and we expect the demand to remain solid throughout the year.

And also regarding your question by geography. Rather than the geography, we believe that it’s more due to the current situation where there is growing demand for education and PCs for home as well.

And you also asked about the potential impact on pricing. Now to answer that question, of course, it is too early to tell, but then we do expect the trend to be healthy throughout the third quarter along with the demand for onboard.

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Operator [10]

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[Interpreted] The next question will be provided by Hyunwoo Doh from NH Investment.

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Hyunwoo Doh, NH Investment & Securities Co., Ltd., Research Division – Analyst [11]

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[Interpreted] Now my question is now first, it seems as if COVID-19 is increasing the demand for game consoles and graphic cards. So do you — and also, it appears that there would also be growing demand for graphic DRAM as well. So then the GDDR6 with SSD usage for game consoles. So are you also seeing the increase of such adoption in the game consoles? And also the SSD supply and demand, so are you seeing any changes to that as well? And now for the server market, we see that the — of the SSD. So in the server market, it seems as if there is growing demand for SSD, but is it because of the growth in the overall market demand? Or are the reasons more specific to the company? So for example, where there any push by the company or specific efforts by the company in order to increase the demand for SSD?

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Unidentified Company Representative, [12]

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[Interpreted] Now first, to your question about DRAM for game consoles. Now in the first half, yes, there was growing demand, strong demand for handheld gaming devices and gaming PCs. And also in the second half, with the expected launch of new gaming consoles, we believe that the demand for DRAM including the GDDR6 will continue to grow. And also, the new product, the HBM2E now because of the rising interest in high-performance computing, once again, because of the COVID-19, we believe that the HBM2E sales will also pick up. Yes, you — as you have rightly pointed out, the SSD. So SSD is expected to be adopted for new game consoles that are to be launched in the second half. So the company is also planning to enter the game console market with SSD in the second half and continue to drive sales.

And to the second question about the increase in the SSD portion. Now the rapid increase in the portion of SSDs for the short term. Yes, on one hand, it is attributable to the changes in the supply and demand dynamics overall. But also, it is also partially owed to the company-specific factors. So for example, our efforts to diversify and improve our product lineup and also to improve our overall competitiveness. So we believe that such company-specific factors were also at play.

We continue to try to broaden our business base by trying to improve our market share among the existing customers and also trying to acquire new customers and also, for example, the leading technology-based PCIe. So we are trying to further give a push to such a leading technology and PCIe and also trying to improve the product coverage. And overall, we are trying to strengthen our cooperation, including in the areas of development, with the customers in all segments as well as all relevant regions.

And based on such efforts, we are trying to link or turn the diverse needs of the market into our business areas. And by doing so, we will keep trying to increase our portion.

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Operator [13]

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[Interpreted] The next question will be provided by Young-gun Kim from Mirae Asset.

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Young-gun Kim, Mirae Asset Daewoo Securities Co., Ltd., Research Division – Research Analyst [14]

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[Interpreted] I have 2 questions about demand. Now first, you did explain about the short-term demand outlook per application. But then, let’s say, in the second half, if the demand were to fall short of expectations, then are there any particular products that would be more vulnerable to inventory risks? So that’s the first question. And the second question, so in terms of the memory scale. So for example, the growth of hyperscaler in the Greater China area and also the memory scaler in the North American region. So what is the company’s view regarding such trend?

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Unidentified Company Representative, [15]

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[Interpreted] To your first question about the inventory risk per application and possible inventory risk in the second half. Now for the demand risk, I would say that there is — so for the demand risk, the leading example would be the smartphone, but then there have been already a decrease in the set shipment in the first quarter. So in terms of the potential risks in the future, the company is already responding to this with a preemptive mix strategy. And also in the first quarter, we already see that the — both the — so in terms of the fall in the demand for both DRAM and NAND, it has already been offset by the increase in demand for server products. So we see that until the end of the second quarter, the inventory level and the mix are showing a very good alignment with each other.

And for PCs, as was mentioned earlier, there is rising demand coming from customers for PCs for both home and education purposes. And because of this, there is already tight supply, so we see little inventory risk.

And then for servers, of course, it would be very difficult to predict the demand by the end of the year. But then between the years 2018 and 2019, the company has already made adjustments to its sales and inventory plans to be better suited to the customers’ demand adjustment and also changes or growth in the market. And as a result of this, we were already able to return our DRAM and NAND inventory to the normal level by the end of the first quarter of this year. Now having done — having gone through all this, the company is now in a better position to respond to the customers’ adjustments in both inventory and mix.

And to your second question about the potential growth of hyperscaler by different regions. Now for companies that have the cloud as well as the e-commerce service platform, I would say that they have a very strong growth momentum regardless of geography. And in particular, in China, with the COVID-19 situation, now we see that the 5G infrastructure is being strengthened and also the need or the demand for on-premise services by public organizations is growing. On top of that, there is also the government’s efforts to boost the economy and also the SNS and cloud services continuing to grow in China. So we believe that there is a good chance that this will continue to grow. Mainly the companies that are related to stable streaming of home entertainment or video platform and the companies that provide video conferencing services, I would say that they have very good growth momentum down the road.

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Operator [16]

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[Interpreted] The last question will be provided by Jong Yoo from Korea Investment & Securities.

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Jong Woo Yoo, Korea Investment & Securities Co., Ltd., Research Division – Analyst [17]

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[Interpreted] Now in the CFO’s briefing, it was mentioned that there is the possibility of some supply disruptions coming from equipment manufacturers, but then we understand that there have already been some supply delays in China. So do you foresee something similar to happen down the road? So now in the second quarter, so there so — do you believe that there would be equipment delay in Wuxi and will end this — will this affect your production schedule? Do you believe that this will do so? Or has such production delay already occurred? And the second question is, now we expect the mobile demand to weaken, and the company is now shifting some of the production with more focus on server and enterprise SSDs. And now if the — then could — is it then also possible that there could also be some weakening of demand for the server DRAM as well as NAND? And you did mention that the pricing and the volume are already determined for the second quarter. But then now there are still concerns for the second half of this year. So do you believe that there could be some weakening of demand for servers and some applications?

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Unidentified Company Representative, [18]

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[Interpreted] To your first question. Now yes, it is true that there are some hurdles in terms of equipment supply and delivery because of the COVID-19 because now some countries have like movement control orders, and some countries also have travel restrictions. So yes, in terms of the supply and production of components by the equipment manufacturers, there could be some hindrances. But the situation has remained manageable until now because we were able to find alternatives or other means in order to overcome the current hindrances. So in the first quarter, there have been really no any meaningful or noteworthy disruptions in production. Now having said that, if the current situation were to be protracted, let’s say, if it were to be prolonged into the second half, then, yes, there is the possibility of actual disruptions occurring. Now in order to prevent such a situation, the company is in close cooperation with the partner companies as well as customers in order to come up with a system to avert such a situation, but it all depends on how the COVID-19 is going to develop and unfold. So it is only by watching the COVID-19 situation that we will be able to assess the actual disruptions or impact. And so it is only then that we can also come up with the solutions, but at this time, I would say that there have been no meaningful or major disruptions in our production so far.

Now to your second question about the pricing and demand outlook for memory for servers in the second half. Now let me reiterate that there are a lot of uncertainties in terms of the demand and price outlook for servers, indeed actually for all applications, but also servers in the second half. But of course, for the mid- to — so in this situation, the company for the mid- to long term, now looking at the, both the memory and the server market growth trend, the company sees that this is going to remain solid, and the growth story is going to remain valid. And because of that, the company will focus more on supplying high-density server products in the second half. And the second point that I will like to make is that based on our experience of dealing with the major customers over the years, we see that the execution of the agreement has been quite solid. So in the second half of this year, we do not foresee major problems in terms of the contract execution.

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Unidentified Company Representative, [19]

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[Interpreted] Thank you very much. With that, we conclude the SK hynix 2020 First Quarter Earnings Release Conference Call. Thank you.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]