---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 183809
conversation_id: 9874060d-55f0-4132-a258-a430cf7e2b20
citations: 7
created: 2026-05-31 19:26:50Z
---

# What is SK Hynix’s core business franchise and the key components of its operating model?

# SK Hynix (000660 KS) — Core Business Franchise & Operating Model

## 1. Core Franchise: A Pure-Play Memory Semiconductor Powerhouse

SK Hynix is a near-pure-play memory semiconductor company, having effectively divested system-semiconductor exposure. As of March 2025, the CMOS Image Sensor (CIS) business unit — historically classified under "System Semiconductor" — was formally converted into the **AI Memory** business, leaving the company structurally focused on memory [5]. The franchise rests on **two product pillars (DRAM and NAND)** with an emerging **third pillar (HBM)** that has become the company's most differentiated and highest-margin business.

### 1.1 Franchise scale (FY2026 Q1, latest reported quarter)
- **Record revenue of KRW 52.58 trillion (+60% QoQ, +198% YoY)** [1], the highest quarterly result in the company's history.
- **Operating profit KRW 37.61T (OPM 72%)** — its 4th consecutive record-high quarterly OP, driven by DRAM/NAND ASP increases and a richer high-value-added product mix [1].
- **EBITDA KRW 41.34T (EBITDA margin 79%)** [1].

### 1.2 Revenue and OP composition (CLSA model, 2024 actual → 2027CL) [10]

| KRW bn | 2024 | 2025CL | 2026CL | 2027CL |
|---|---:|---:|---:|---:|
| **Total Sales** | 66,193 | 86,248 | 94,884 | 112,382 |
|  DRAM | 45,192 | 67,195 | 74,399 | 88,958 |
|  NAND | 18,889 | 16,582 | 17,537 | 19,887 |
|  Others | 2,113 | 2,471 | 2,948 | 3,537 |
| **Operating Profit** | 23,467 | 38,552 | 43,131 | 47,896 |
|  DRAM OP | 20,753 | 38,906 | 44,365 | 50,533 |
|  NAND OP | 2,724 | (332) | (1,209) | (2,617) |
| **OPM blended** | 35% | 45% | 45% | 43% |
|  DRAM OPM | 46% | 58% | 60% | 57% |
|  NAND OPM | 14% | (2%) | (7%) | (13%) |

The model captures the structural reality of the franchise: **DRAM (~78% of 2025E sales) is the profit engine; NAND is a strategically necessary but margin-dilutive complement.**

---

## 2. Three Operating Model Components

### 2.1 DRAM — The Core Profit Engine, Anchored by HBM Leadership

**DRAM is the dominant economic franchise.** In 2025E, DRAM represents ~78% of sales and >100% of operating profit (NAND is in the red on CLSA's forecasts) [10]. Within DRAM, the company has consolidated three sub-franchises:

- **HBM (High Bandwidth Memory) — the crown jewel.** SK Hynix expects to maintain leadership of the HBM market, which it projects will grow at **50%+ CAGR (bit basis) until 2028** [8][12]. HBM shipments are forecast to rise **+95% in 2025 and a further +40% in 2026**, with HBM revenue share approaching ~50% of DRAM revenue and stabilising at **55–60% in 2027–2028** [9]. Production of **HBM4** begins in 4Q25 with an estimated **~30% ASP premium over HBM3E** — driving blended ASP and profitability into 2026 (Source: CLSA SK Hynix research note, June 2025).
- **Server DRAM (DDR5/MCR DIMM, CXL).** Strong position in the DDR5 transition supports profit rebound out of the down cycle [8]. The 1c-nm (6th-gen 10nm) DDR5 was the world-first development; HBM4 uses 1b-nm 24Gb dies and the proprietary Advanced MR-MUF stacking process (Source: SK Hynix annual report).
- **Mobile / Graphics DRAM (LPDDR5X/T, GDDR7).** Targeted at smartphones and AI-server accelerators, including SOCAMM/LPCAMM form factors for AI servers (Source: SK Hynix annual report).

**Legacy DDR4** is a meaningful (~10% of DRAM revenue) but volatile contributor — DDR4 prices rose +30% QoQ in 2Q25, boosting near-term operating profit even though the broader strategic emphasis is on DDR5/HBM transition [11].

### 2.2 NAND Flash — Strategic Complement, Solidigm-Integrated

NAND has been deliberately positioned as a complement, not a co-equal pillar, and currently runs at negative segment OP per CLSA's model [10]:
- **Solidigm (former Intel NAND business)** is fully consolidated; the final acquisition of Intel NSG's NAND business (ex-Optane) was completed in March 2025 [7].
- The product portfolio spans **eSSDs (PS1012 61TB QLC for AI data centres), client SSDs, and mobile NAND (UFS 4.1, ZUFS 4.1 for on-device AI)** (Source: SK Hynix annual report).
- 321-layer 1Tb TLC 4D NAND mass production began in late 2024, with 321-layer 2Tb QLC in August 2025 (Source: SK Hynix annual report).
- NAND inventory remained elevated at ~15 weeks at end-1Q25 vs DRAM at ~7.5 weeks; the company is managing through inventory clearance, fab utilisation discipline, and capex restraint on the NAND side [11].
- Forward guidance (FY2026 Q2 plan): DRAM bit growth high-single-digit % QoQ, **NAND bit growth mid-teen % QoQ including Solidigm**; product strategy is to expand 321-layer products and eSSDs [4].

### 2.3 AI Memory (formerly CIS) — Pivot Completed

The CIS (CMOS Image Sensor) business — historically the only "system semiconductor" segment SK Hynix manufactured — was repurposed into the **AI Memory** business unit in March 2025 [5]. This consolidates the franchise around memory and signals that any standalone non-memory exposure has been wound down.

---

## 3. Demand Engine — AI-Driven Up-Cycle

Management frames the operating environment around AI: *"As memory becomes increasingly critical in AI computing, demand for high-performance memory is surging while supply remains constrained, expect favorable pricing environment to continue for the time being"* [2].

By end-market:
- **Server (SV) — primary growth driver.** *"AI technology is evolving rapidly beyond training to inference & agentic AI stage... the demand base is broadening for both DRAM and NAND"* [3]. Robust server memory demand is offsetting weakness elsewhere [3].
- **PC/Smartphone — softening on cost pressure.** *"Some signs of softening demand, including adjustments in set shipments and product portfolio changes, have emerged due to cost pressures from higher memory prices"* — offset by server strength [3].

Industry context: According to Gartner, the **memory market grew +73.4% in 2024 and a further +31.0% in 2025**, with DRAM specifically growing **+82.7% in 2024 and +48.0% in 2025** ($91.6bn → $135.6bn), driven primarily by HBM and high-density server DRAM for AI [6].

---

## 4. Operating Model — Manufacturing, R&D, Capital Allocation

### 4.1 Manufacturing footprint
The company's wafer fab base spans Korea and China:
- **Icheon (Korea)** — including the newer **M16 fab completed February 2021** [7].
- **Cheongju (Korea)** — including **M15X**, designated in April 2024 as a new DRAM production base [7].
- **Wuxi & Dalian (China)** — Dalian Fab acquired December 2021 as part of the Intel NAND deal [7].

A central strategic dynamic on the supply side: **DRAM wafer capacity is being converted to HBM**, which tightens conventional DRAM supply and supports ASPs even as bit shipments grow [11].

### 4.2 R&D intensity and product cadence
- **R&D expense KRW 6,732bn in 78th period (FY ending Dec 2025)**; **R&D-to-sales 6.9%** (vs 7.5% in FY77 and 12.8% in FY76, reflecting massive sales growth in 2024–2025 rather than declining R&D dollars) (Source: SK Hynix annual report).
- Research is split across **선행기술/기반기술/Solution개발/Package/SHE** labs reporting directly to the CEO (Source: SK Hynix annual report).
- The company has built a world-first technology cadence: world-first HBM3 development (Oct 2021), first 12-Hi HBM3 (April 2023), first HBM3E mass production (March 2024), first 12-Hi HBM3E (Sept 2024), first 321-layer NAND (Nov 2024), HBM4 12-Hi sample shipment (March 2025), HBM4 mass production setup (Sept 2025) [7].

### 4.3 Capital structure — deleveraging via cash flow
The AI up-cycle has rapidly transformed the balance sheet:
- **Cash position grew from KRW 14.31T (1Q25) → KRW 54.33T (1Q26)** [1].
- **Debt fell from KRW 23.33T → KRW 19.32T**, with **debt-to-equity at 12%** and **net debt-to-equity at –21% (net cash position)** [1].

### 4.4 Catalyst and risk framework
CLSA frames the bull case around two operating-model levers: *"Maintenance of its leadership in HBM market could continue to drive market share and faster-than-expected NAND demand recovery would likely work as a potential catalyst for the stock"* [12]. The implication is that the franchise is structurally levered to two things — HBM execution (where SK Hynix has first-mover lead) and the NAND cycle (where it currently lags).

---

## 5. Synthesis — What Makes the Franchise Distinctive

1. **Pure-play memory exposure** with the CIS/non-memory tail effectively retired [5].
2. **HBM leadership** is the differentiator — it is converting a historically cyclical commodity business into a structurally higher-margin, lower-cyclicality franchise as HBM moves to ~55–60% of DRAM revenue by 2027–2028 [9].
3. **DRAM-heavy P&L** (~78% of sales, >100% of OP), with NAND as a strategic complement, including the **fully integrated Solidigm asset** [7][10].
4. **Operating leverage is exceptional** — 72% OPM in FY26Q1 [1] — reflecting the combined effect of DRAM ASP gains, HBM mix, and tight conventional DRAM supply from HBM-driven wafer conversion [11].
5. **Capital allocation** has shifted from leverage to net cash within a single year of the up-cycle [1].

The franchise can thus be summarised as: *a memory-only platform anchored by DRAM, supercharged by an AI-driven HBM monopoly-adjacent position, supplemented (but not yet rewarded by the market) by a Solidigm-integrated NAND business.*

---

**Sources**

[1] SK hynix Inc., FY2026 Q1 Earnings Presentation (slides) — SK Hynix IR (23-Apr-2026)
[2] SK hynix Inc., FY2026 Q1 Earnings Presentation — Market Outlook (slides) — SK Hynix IR
[3] SK hynix Inc., FY2026 Q1 Earnings Presentation — SV/Inference & Agentic AI commentary (slides) — SK Hynix IR
[4] SK hynix Inc., FY2026 Q1 Earnings Presentation — Sales B/G, HBM strategy (slides) — SK Hynix IR
[5] SK hynix Inc., Q4 2025 Annual Report (사업보고서 / DART) — System Semiconductor / CIS-to-AI-Memory transition
[6] SK hynix Inc., Q4 2025 Annual Report — Industry growth (Gartner, January 2026 citation)
[7] SK hynix Inc., Q4 2025 Annual Report — Production facility history & R&D milestones
[8] Korea Memory sector outlook (Micron call read across; solid AI demand) — CLSA, 25-Jun-2025 — 607962817LinqAlpha.PDF
[9] Korea Memory sector outlook (Micron call read across) — CLSA, 25-Jun-2025 — HBM shipment / share trajectory
[10] Korea Memory sector outlook — CLSA, 25-Jun-2025 — SK Hynix annual earnings forecast table
[11] SK Hynix - HC O-PF (Expecting another strong quarter) — CLSA, 19-Jun-2025 — 607962387LinqAlpha.PDF, 2Q preview / inventory
[12] SK Hynix - HC O-PF (Expecting another strong quarter) — CLSA, 19-Jun-2025 — Catalysts section

## Citations

- [1] **SK hynix Inc., Q1 2026** · external
- [2] **SK hynix Inc., Q1 2026** · external
- [3] **SK hynix Inc., Q1 2026** · external
- [4] **SK hynix Inc., Q1 2026** · external
- [5] **SK hynix Inc., Q4 2025 Report** · external
- [6] **SK hynix Inc., Q4 2025 Report** · external
- [7] **SK hynix Inc., Q4 2025 Report** · external

