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Edited Transcript of 000660.KS earnings conference call or presentation 24-Oct-19 12:00am GMT

Q3 2019 SK Hynix Inc Earnings Call

Icheon Oct 27, 2019 (Thomson StreetEvents) -- Edited Transcript of SK Hynix Inc earnings conference call or presentation Thursday, October 24, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jin-seok Cha

SK hynix, Inc. - CFO

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Conference Call Participants

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* Do-Yeon Choi

Shinhan Investment Corp., Research Division - Research Analyst

* J.J. Park

JP Morgan Chase & Co, Research Division - Head of Asia Technology Research and Korea Research

* Jong Woo Yoo

Korea Investment & Securities Co., Ltd., Research Division - Analyst

* Marcus Shin

Mizuho Securities Co., Ltd., Research Division - Senior Analyst

* Ricky Juil Seo

HSBC, Research Division - Analyst, Semiconductor/OLED

* S. K. Kim

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

* Soonhak Lee

Hanwha Investment & Securities Co., Ltd., Research Division - Analyst

* Young-gun Kim

Mirae Asset Daewoo Securities Co., Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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[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 2019 third quarter earnings results by SK hynix. (Operator Instructions)

Now we shall commence the presentation on the fiscal year 2019 third quarter earnings results by SK hynix.

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Unidentified Company Representative, [2]

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[Interpreted] Good morning and good afternoon and evening to those calling in from abroad. This is [Pak Sunghan], the Head of IR at SK hynix. Welcome to the SK hynix 2019 Third Quarter Earnings Release Conference Call.

Before starting the conference call, allow me to introduce the executives present here with me today. First, SK hynix, CFO, Cha Jin-seok; Kim Seok, the Head of the DRAM Marketing Group; and the Head of NAND Marketing Group, Kim Young-Rae.

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's 2019 Third Quarter Earnings Release Conference Call. We will first present the earnings for the third quarter, the company's plan and the market outlook.

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

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[Interpreted] Good morning. This is the CFO, Cha Jin-seok. I will first report on the company's financial performance in third quarter 2019. Consolidated sales in the third quarter was KRW 6.839 trillion, up 6% from the previous quarter. Sales grew for both DRAM and NAND, driven by signs of demand recovery and slowdown in the price decline.

DRAM bit shipment grew by 23% quarter-on-quarter, far outperforming the plan. As the company actively responded to the mobile market that showed a seasonal upturn with new smartphone launches and increased sourcing by some Internet data center customers. ASP fell by 16% from the previous quarter, but the price decline softened in all product categories except mobile.

The company actively responded to solution markets, such as the high-density mobile and SSD markets, as continued price-elastic recovery in demand. But the sale of discrete products, which increased temporarily in the previous quarter, came back down to normal range. NANDFlash bit shipment fell by 1% from the previous quarter. ASP rose by 4% quarter-on-quarter with moderated price condition in all applications and a considerable volume mix reduction of discrete products, which carried relatively lower price than others.

MCP bit shipment grew with rising smartphone demand in China, but price decline continued, which led to 2% sales decrease quarter-on-quarter. Its sales portion out of total revenue also fell slightly to 22%. Operating profit in the third quarter was KRW 473 billion, down 26% from the previous quarter. Although DRAM unit cost was reduced, it was not enough to offset the price decline. Operating profit margin was 7%.

Depreciation and amortization in the third quarter was KRW 2.159 trillion, slightly up from the previous quarter. EBITDA was KRW 2.631 trillion, with EBITDA margin of 38%. There was net nonoperating profit of KRW 48 billion in recognition from foreign currency-related gains as the Korean won depreciated at the quarter end. Net profit after tax was KRW 495 billion with net profit margin of 7%. Consolidated cash balance at the end of the third quarter was KRW 3.256 trillion, up by KRW 146 billion from the previous quarter. Interest-bearing debt was KRW 9.703 trillion, up by KRW 956 billion, mainly due to issuance of $500 million of offshore corporate bond.

Let me now turn to the company's market outlook and plan. DRAM market in the third quarter exhibited healthier demand than expected with demand expansion coming from the PC and newly launched smartphones and increased sourcing from some server customers. After a period of stagnant demand, DRAM inventory level gradually normalized for Internet data center customers, prompting to begin increasing their purchase. Server demand is also on the rise for the customers in the Greater China region, and this trend of server demand recovery is expected to continue in the fourth quarter.

In the global mobile market, entering into the second half, the sales remained brisk for new flagship models with high density, 8- to 12-gigabyte mobile DRAM adoption, including those that support 5G services. Next year, 5G smartphones are expected to enter a growth cycle in earnest, triggering the smartphone replacement demand that had been dormant for some time and helped drive stable memory demand increase.

Meanwhile with Windows 7 support about to terminate, demand is improving for enterprise PCs. Price competition for market share gain among SoC makers is easing the cost burden on PC OEMs and is expected to have a positive impact on demand for components such as PC DRAM and graphics DRAM.

In the NAND market as well, there is shipment growth in PC and smartphone and elastic-demand recovery is speeding up with lower NAND price. In particular, NAND demand for PC SSD in the third quarter grew nearly 50% year-on-year. As we saw, mid-20% growth year-on-year in SSD shipment for PCs, an increase in the average NAND content in the SSD with a high 20% adoption of 500 gigabytes for higher content.

NAND content in smartphones continued to increase, and the average content per box is expected to reach 100 gigabytes in the fourth quarter. This trend continues in the mid- to low-end smartphones as well with the average content of DRAM and NAND in the MCP already reaching beyond 4 gigabytes and 60 gigabytes, respectively. And with suppliers' inventory level quickly coming down, NAND supply and demand dynamics is regaining balance, adding the gradually rising eSSD purchase demand from server customers, a favorable price environment is expected to continue for some time.

While it is evident that the customer demand improvement is a positive trend, there still exists chances for a sudden change in demand due to external uncertainties, including trade disputes. And since the customers that are more exposed to the trade issues may be willing to accumulate component inventory preemptively, we will keep executing our production and CapEx plans with a cautious stance.

As was reported last quarter, we are converting part of the M10 DRAM capacity into CMOS image sensors for volume production and reducing 2D NAND wafer capacity. This will reduce wafer capacity for both DRAM and NAND next year and total CapEx, including equipment spending that has a direct bearing on wafer production is expected to be reduced considerably.

In addition, the company will keep trying to create stable profitability, while flexibly responding to changes in demand in each application. We will focus on driving sales for high value-add products that offer high density, low power consumption and high speed, enabled by our next-generation process technology so that we can accelerate growth as the market improves.

For DRAM, we started sales of computing products using 1Y nanometer technology and will increase the portion of 1Y nanometer to low 10% by this year-end, as the portion of 20-nanometer shrinks. In addition, we will make preparation for stable mass production of the recently developed next-generation 1Z nanometer technology. In addition, we plan to actively address the demand in LPDDR5 and HBM through e-markets that is expected to grow as customer adoption increases next year.

For NAND, we started sales of 96-layer products and their respective bit proportion will be pulled up to more than mid-10% level by the end of the year. We will focus on the high-density NAND markets, such as high-end smartphones and PCIe SSDs, which is likely to raise our SSD revenue mix to 30% in the fourth quarter. We are also making preparation on schedule for volume production and sales of 128-layer products. In light of the current environment, where demand continues to grow, our DRAM bit shipment in the fourth quarter is expected to increase by mid-single-digit percent, and NAND bit shipment is expected to increase by around 10% level.

For the company's full year, DRAM bit shipment is expected to grow by high 10% level, thanks to the higher-than-planned performance in the third quarter. NAND bit shipment growth is expected to reach around 50% level. This will significantly reduce our DRAM and NAND inventory level at the end of this year from the very high level in the first half of this year.

Volatility in the memory market has increased considerably this year due to a number of external factors and slow demand overall. Although memory technology has become far more complex over the years and demand has become more diversified, the magnitude of the change has been bigger than expected. But the company has adjusted its production, sales and CapEx strategies in a timely manner, ensuring effective response to changes in the market environment as they arise.

5G service that was commercially launched from this year is expected to start spreading more quickly next year, creating a momentum for new memory demand for a long time to come. SK hynix will utilize this downturn as a chance to minimize business volatility and ensure sustainable growth in the midst of structural changes in the demand environment. We ask, as always, for your continued support and encouragement. Thank you.

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] Now Q&A session will begin. (Operator Instructions) The first 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 [2]

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[Interpreted] I have 2 questions. First is about the DRAM demand in the third quarter, which was much stronger than the company's guidance. Now of course, you did explain a little bit about this in the presentation, but can you elaborate a bit more on the reasons why the actual demand for the DRAM in the third quarter outpaced the company's guidance so much? And then in relation to this, now there are some concerns that perhaps the demand in the third quarter was driven by the move to preemptively stock up the inventory ahead of the U.S.-China trade dispute. So the concern is that perhaps the demand will not continue into the fourth quarter. So what is the company's expectation? Do you believe that the stronger-than-expected demand in the third quarter will continue into the fourth quarter? And then the second question is about the outlook for demand for the 5G smartphones next year. We see that many companies are upwardly adjusting their demand outlook for 5G smartphones? And what is the company's outlook?

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

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[Interpreted] Now first of all, about the DRAM demand in the third quarter, there has been recovery in demand from the server clients in the Greater China region as well as the IDC clients in the U.S.

And then from the mobile side, yes, there have been some, let's say, a buy ahead or inventory buildup moves coming from the Greater China region, as you have mentioned, and also some such moves in the PC side as well.

And then as regards to whether such move will continue into the fourth quarter, now perhaps not so much as the bit growth of 23% that we have seen in Q3, but then we are still expecting about mid-single-digit growth in Q4 as well.

But bearing in mind the persisting macroeconomic uncertainties, we are also watching out for the possibility of the server customers taking a turn for a more purchase -- more conservative purchasing stance.

And then regarding the second question about the outlook for 5G smartphones next year. And yes, we see that there is going to be a big jump in the demand for 5G smartphones, more so than this year. So -- whereas this year, the numbers were about millions of units for smartphones. But for next year, combining all the demand coming from the customers, and we project this to be around 200 million units.

And the reasons or the causes or the drivers of such a jump in the demand for the 5G smartphones, we believe, are the increase by the subsidies from the Chinese government and also the dissemination of [mood] app, so the integrated chip, which is also driving the development of mid- to low-end 5G smartphones.

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Operator [4]

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[Interpreted] The next question will be provided by Marcus Shin from Mizuho Securities.

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Marcus Shin, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [5]

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[Interpreted] I have some questions about your fab operations. So now the ones in C2F in Wuxi, which has newly opened and then the M15 in Cheongju, the ramp-up. So can you just give us the update on this fab. And also for the M16 ramp-up plan for the -- by the end of next year, so in the second half of next year for the fab in Icheon. So when do you believe that you'll also be able to start the operation of M16? And also you did mention that the CapEx for next year will be reduced. And can you just give us -- tell us about how much it is going to be?

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Jin-seok Cha, SK hynix, Inc. - CFO [6]

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[Interpreted] Now first of all, about the fabs. Yes, so the Wuxi C2F and the Cheongju M15, they have both opened and are operating on schedule. But then in terms of the ramp-up, now, the pace of the ramp-up we are trying to be flexible as we keep an eye out on the market changes. And then for the Icheon M16. Again, as you have rightly pointed out, yes, this is scheduled to open in the second half of next year. But then again, from the NAND, in terms of the further ramp-up, we will be watching out for changes coming from the market, and we'll remain flexible in the pace of the ramp-up.

And about the CapEx plan for next year, now please understand that the company's business plan is -- business plan for next year is still under work, so we cannot tell you the exact number at this point. But then looking at the activities of the company recently, then I believe that the CapEx will be reduced considerably in line with the company's plan and activities so far. And likewise, there is going to be a significant reduction in the investment into equipment as well.

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Operator [7]

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[Interpreted] The next question will be provided by Do-Yeon Choi from Shinhan Investment.

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Do-Yeon Choi, Shinhan Investment Corp., Research Division - Research Analyst [8]

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[Interpreted] Now I also have 2 questions. Now first is about the inventory level in the third quarter. So I see that the inventory level in the third quarter has gone down. So it seems like the first quarter this year that SK hynix's inventory did go down. So when do you believe that the inventory level will go back to normal for both DRAM and NAND? And then the second question is about the NAND profitability. So we see that the NAND price is recovering. So -- and it's likely that the recovery in the pricing will continue into the fourth quarter. So the market is wondering whether there is going to be a reversal in the inventory write-off in NAND. And if so, then do you believe that there is going to be much improvement in the NAND profitability in the fourth quarter compared to the third quarter?

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Jin-seok Cha, SK hynix, Inc. - CFO [9]

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[Interpreted] Now first about the DRAM inventory, which was explained in the presentation that it is going to go down considerably by the end of the year compared to the early part of the year. If I were to give you some specific numbers, then at the end of the second quarter, it was at 7-week level. And at the end of the third quarter, it went down to 5-week level.

And this number is likely to roughly continue in the fourth quarter. And then going into next year, in the first quarter, the trend could change a little bit because of the seasonality. But then afterwards, we believe that this will then start again to slightly go down. So this means that the inventory level is more or less back to normal.

And then for the NAND inventory by -- at the end of the third quarter, it was at high 6-week level. And then now this will also continue into the fourth quarter and all the way to the end of the year. So we believe that by the end of the year, the NAND inventory level will also go back to normal.

Now as for the NAND price and the profitability, yes, there have been some slight increase in the NAND price in the third quarter because of the additional demand coming from some channels as well as from some applications. But then since then, in the third quarter, there has been a slight fall in the price after the negotiations.

And then in the fourth quarter, there is going to be some price increase for the -- for some applications. So we believe that, thanks to the improvement in price and reduction in costs, there will be some improvement in NAND profitability in the fourth quarter.

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Operator [10]

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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 [11]

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[Interpreted] I also have 2 questions. First is about the company's capacity operation strategy. So in the third quarter, can you just give us a rough idea about the share in the capacity between mobile and server? And also in terms of the inventory, in the server, we see that the server inventory remains a bit high. Then -- but then now for next year, if the -- for the smartphones, if the demand for -- the strong demand for 5G smartphones is going to be a surefire thing, then can we take it that the company would be converting some of the capacity more to the mobile side? And then the second question is about the demand coming from the Taiwanese company. So it seems as if there is growth in demand for server components, led by the Taiwanese companies. So what is SK hynix's understanding of the data center companies' inventory level today? And how strong do you see the demand is coming from them? And when do you believe that there is going to be a full pickup in demand?

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Jin-seok Cha, SK hynix, Inc. - CFO [12]

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[Interpreted] Now first about the share of capacity between mobile and server. In the first half, mobile was much higher. And then in the second half, the server's share has increased, and this will continue into the fourth quarter. But still, when you look at this year's numbers, then the mobile share is still higher.

And then looking ahead to next year, then because of the expected demand for the 5G smartphones, yes, the mobile share is likely to be higher next year than this year, which means that the server's share is likely to be lower than it was this year. But now having said that, please bear in mind that this is dependent on the market circumstances. So we will run our capacity in a strategic and flexible manner as we keep an eye out for the market.

And then the second question about the demand coming from these server companies of Taiwan. So the supply chain channel, so yes, of course, we are monitoring them as well. And yes, we also see that there has been increase in component demand and ODM build.

So as the set build increases from the server companies and the data center clients, we see that they are very quickly using up their inventory. So by the end of the year, their inventory level is likely to be about half the level that it was in the beginning part of the year.

So as the inventory goes down, and as there is a possibility of a market upturn in 2020, it seems true that the server customers have done some buy ahead.

And then looking ahead to the first quarter, then -- well, the first quarter is traditionally -- there is a traditional seasonality in servers in the first quarter. But then now if we are to look ahead into 2020, then there -- so around the time of the new SoC launch, there is some volatility expected at that time. So considering all the factors and the circumstances, we believe that the pickup -- the recovery in the server demand is going to materialize perhaps in the -- by the end of the first quarter or early second quarter.

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Operator [13]

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[Interpreted] The next question will be provided by Soonhak Lee from Hanwha Investment & Securities.

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Soonhak Lee, Hanwha Investment & Securities Co., Ltd., Research Division - Analyst [14]

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[Interpreted] Our first question is about the -- your shareholder return policy. So I see that the free cash flow for this year is going to be much worse than last year. And it's very likely to affect your shareholder policy such as dividend policy. So will there be changes to your shareholder policy this year? And the second question is, I see that the NAND price, yes, it has been increasing. So you did mention this earlier, but then what do you see as the actual drivers of the stronger price in NAND? Is it perhaps from the Toshiba side? So are there still problems lingering even after Toshiba came out of the power shutdown situation? And when do you -- until when do you believe that this is going to continue? And when do you believe that your NAND business will turn around to profitability?

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Jin-seok Cha, SK hynix, Inc. - CFO [15]

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[Interpreted] The company began to provide cash dividends in 2014. And since then, we have maintained the dividend per share policy at around 30% to 50% of free cash flow. But now as you have pointed out, the cash flow for this year has considerably worsened, so it is going to be quite challenging for the company to apply the policy as it has been so far.

So the company believes that there should be some adjustment to the dividend policy, and that is currently under review. But then at a time when the company profitability or cash flow are quite extremely volatile and changing, we believe that we need to try to find the right balance and also consider the acceptance by -- acceptance level by the shareholders as well. So we would be taking a look into the overall factor. So we will be looking into the company's financial performance and the free cash flow and the market circumstances as we try to come out with the kind of policy that would work for the company and would also be acceptable to the shareholders.

Now regarding your second question, the demand has continued to increase in the second half. So in the first half, there has been -- so from the supply side, you see that there has been reduction in investment in the first half, whereas sales continued to increase, and as a result, the supplier's inventory level began to stabilize. And then coming from the demand side, then we also see that there has been bigger adoption, content per box for SSD. And also, there has been a bigger increase in content per box for mobile SSD as well.

We believe that it is this change in the supply-demand situation that has driven up price. And since there has been general improvement in supply and demand situation, we believe that the price increase will continue for some time. Now having said that, because of the macroeconomic circumstances, there is always a risk of the market volatility increasing all of a sudden.

So thanks to the stronger price and also our continued efforts to reduce the cost, we have been able to improve profitability, but it's not likely that we will turn around to profit in the short term.

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Operator [16]

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[Interpreted] The next question will be provided by SK Kim from Daiwa Capital Market (sic) [Daiwa Securities].

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S. K. Kim, Daiwa Securities Co. Ltd., Research Division - Research Analyst [17]

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[Interpreted] I have some questions about your technology road map. Now you did explain a bit about the road map for the second half, then, can you also explain more about the road map for both DRAM and NAND for next year? And in relation to that, the EUV for the company. So the company has announced the completion of the development for 1Z nano, and you also have announced the intent to start supplying this next year without having used the EUV, but then we see that starting this year, some foundries have started using EUV for their volume production. And it's likely to be applied to DRAM in the very near future. So what is the SK hynix's update on the EUV preparation? And what is your plan for this? And then about NAND, for next year, it seems as if some of your peers -- some of the other suppliers, there would be some supply difficulties from the other players next year. Then, what is the company's ramp-up status for the 96 layer and the 128 layer? And what is your plan down the road? And do you believe that you will be able to further widen the technology gap with the other players?

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Jin-seok Cha, SK hynix, Inc. - CFO [18]

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[Interpreted] Now first about the DRAM development road map. Now as has been reported through the media, yes, we did complete the development for 1Z nano; to be more specific, the 16-gigabit DDR4. And then using this technology, the 1Z nanometer, there would be additional follow-up products to be developed by early and mid-next year. For example, LPDDR5.

And then the follow-up to that would be 1A nanometer level and the plan is to develop this by early 2021. And our plan for EUV is to start applying the EUV for volume production of 1A nanometer. And then the next technology will be 1B nanometer planned for 2022. And by this time, the application of the EUV will widen as we continue -- move ahead with the development.

And then for NAND, in the second half of this year and the first half of 2020, we will first focus on increasing sales for the 96 layer. And then for the 128-layer products, we will be focusing more on the customer qualification and mass production for -- in the first half of 2020 for a client SSD and some major clients on the mobile side. And then the full sales is likely to begin in the third quarter of next year.

Now given that the 96-layer and 128-layer share a lot in terms of the structure, we believe that there is going to be a very smooth conversion between the 2 products in terms of the production. So for the investment, we will try to optimize investment and also maintain the optimum capacity as we continue to strengthen our competitiveness in both the product and cost. And based on that, we will continue to drive business in these products.

We'll take 2 more questions.

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Operator [19]

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

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Young-gun Kim, Mirae Asset Daewoo Securities Co., Ltd., Research Division - Research Analyst [20]

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[Interpreted] I have 2 questions about demand. First, the stronger demand on the mobile DRAM side. So do you believe that it is coming from the increase in set or increase in content? And if it is coming from the increase in the set, then depending on the level of sell-through in China, I believe that the mood can change all of a sudden. But if it is due to the increase in sell-through, then perhaps there are some changes in the structural demand. So which do you believe is the main driver of the stronger demand for DRAM? And then the second question is about the CPU shortage that seems to persist to this day. So with the CPU shortage not going away, do you believe that this is also going to weigh down on the demand recovery?

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Jin-seok Cha, SK hynix, Inc. - CFO [21]

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[Interpreted] The first question about the mobile, so for the smartphones and your question was whether the mobile DRAM demand is driven by set increase or the content increase. And obviously, it is very difficult to pinpoint where it is exactly coming from between the 2. But then for the smartphone set, there has been negative growth from 2018, which also continued into this year. But then next year, we believe that because of the 5G replacement demand, there is going to be set increase by around 1 percentage point.

And then for the content side, this year, the average content was 4 gigabytes. Next year, it's expected to be 5 gigabytes. And of course, it's because of the increasing tier and also the high premium smartphones, for example, for the 5G. So the increase in -- on average, is going to be about 20% for the content. So then we see the increase in set by about 1% and content by about 20% level. So all of this combined is likely to drive up the mobile demand, mobile DRAM demand next year by 20% level.

And then the second question about the PC CPU shortage. Now this appears to have been caused by the more concentrated demand on one side than expected out of the overall expected mix between the CPU tiers.

And it is likely to have an impact on the build or shipment of PC sets in the fourth quarter, meaning that the sudden jump in demand for one particular side, that probably is going to have an impact on the build.

But then looking ahead for the longer term into next year, then we see that from the PC CPU side, in terms of the number, so looking at the numbers from the PC CPU companies, then also looking at the capacity that the foundries have secured so far, then we see that the CPU is going to increase considerably next year. So this means that in general, and also for the longer term, this is not going to affect the demand for PC DRAM.

Okay. One last question.

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Operator [22]

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[Interpreted] The last question will be provided by J.J. Park from JPMorgan.

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J.J. Park, JP Morgan Chase & Co, Research Division - Head of Asia Technology Research and Korea Research [23]

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[Interpreted] My first question is about your performance in the third quarter and the margin. I see that in the third quarter, sales grew quarter-on-quarter, but then margin actually fell. Of course, in the first quarter, there has been some impact from the inventory valuation loss and so forth. But then in the third quarter, why do you believe that the margin actually fell compared to the previous quarter? And also in the third quarter, I see almost no tax credits or tax breaks. So have there been any tax credits in the third quarter? And then the second question is, now, next year, it seems as if there is going to be some unit growth. And so the -- because of the increase in the content and also the 5G demand and the inventory normalizing. So overall, it seems as if there is expectation of demand growing next year, but then the company is planning to reduce CapEx. So is this because you believe that you will be able to support the incremental demand just with technological migration? Or is there any other reason?

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Jin-seok Cha, SK hynix, Inc. - CFO [24]

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[Interpreted] Now regarding the performance -- financial performance in the third quarter. So throughout the first, second and third quarters this year, aside from the changes on the profitability coming from the changes in the shipment in ASP, there are no other non-ordinary factors that we can mention. And then about the tax credit, yes, you mentioned that in the third quarter, there seems to have been no tax credit or the overall corporate tax has gone down, and one part of it is because of our lower pretax profit. So as a result, the corporate income tax has also gone down. Aside from that, there were some tax credits that were not reflected in our book. So this was captured the last time in the third quarter, and that is why this has decreased our corporate income tax.

And then to your question of CapEx, now basically, of course, we would have our fab operations based on the business outlook and the market circumstances and CapEx would, of course, follow such fab operation strategy.

And then for as we had explained earlier, now the company will, of course, maintain the investment into the infrastructure for future growth. But other than that, let's say, the short-term investment into equipment, we would be flexible about such investments as we keep an eye out for the market circumstances. And this stance will continue into next year. And then for both DRAM and NAND, it is true that there are some signs of change in demand to come. But then when it comes to CapEx, we still have to be mindful of the external uncertainties that are still persisting. So basically, we are being -- we're taking a more conservative stance for CapEx next year.

So that concludes the SK hynix 2019 Third Quarter Earnings Release Conference Call. Thank you very much for your participation.

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