SK Hynix Inc

KRX:000660

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, afternoon and evening. Thank you for participating today. We will now begin the SK hynix 2023 Q3 Earnings Release Conference Call. For today's conference call, after SK hynix' presentation, there will be a Q&A session with the participants. [Operator Instructions] Today's presentation will be interpreted simultaneously, and the Q&A session will be interpreted consecutively.

With that, we will now begin today's presentation.

[Seong Hwan Park, executive]

[Interpreted] Good morning, afternoon and evening. This is Park Seong Hwan, the Head of IR at SK hynix. Welcome to the SK hynix 2023 Q3 Earnings Release Conference Call. Before starting the conference call, allow me to introduce the executives present here with me today. We are joined by CFO, Kim Woo-Hyun; Head of DRAM Marketing, Park Myoung-Soo; and Head of NAND Marketing, Park Chan-Dong.

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 the SK hynix 2023 Q3 Earnings Release Conference Call. Mr. Kim will first present the earnings for the third quarter, followed by the company's future plans and market outlook. There will then be a Q&A session with the management team.

[Woo-Hyun Kim, executive]

[Interpreted] Good morning. Allow me to first introduce the company's performance for the third quarter of 2023. In the third quarter, the overall IT demand continued to show a gradual recovery. Following the previous quarter, there was a strong demand for high-density DDR5 and HBM for AI servers.

Along with the release of new products, there was a noticeable increase in demand for high-performance, high-density mobile memory, driven by new product launches and the trend of higher performance flagship models in smartphones. Based on our technological and product leadership, we expanded sales of premium products such as DDR5, high-performance, high-density mobile products and HBM, resulting in a 24% sequential increase and third quarter revenue to KRW 9.07 trillion.

For DRAM, sales to server systems increased significantly due to the continued strong demand for DDR5 and HBM, leading to a shipment increase of approximately 20% compared to the previous quarter. The average selling price also rose by around 10% due to price increases in key products and higher contribution from high value-added products.

Despite the base effect of a strong bit growth in the previous quarter, NAND recorded mid-single-digit bit growth compared to the previous quarter driven by the expansion of high-density mobile products and SSD sales. However, ASP declined slightly. As revenue increased compared to the previous quarter and some of the recognized inventory valuation losses were reversed due to the rise in DRAM prices, our third quarter operating loss improved by KRW 1 trillion compared to the previous quarter to KRW 1.79 trillion, with an operating margin of negative 20%.

In particular, our DRAM business quickly expanded the mix of high-performance premium products, driven by industry leading technological capabilities. And therefore, starting from the second quarter, ASP turned positive, surpassing the industry average. Based on this, our DRAM margins turned to profitability after 2 consecutive quarters of losses since 2012.

Depreciation and amortization expenses for the third quarter amounted to KRW 3.33 trillion, slightly decreasing compared to the previous quarter due to reduced capital spending. EBITDA recorded KRW 1.54 trillion with an EBITDA margin of 17%.

Nonoperating loss net of gain in the third quarter was KRW 0.68 trillion. This includes net interest expense of KRW 0.34 trillion and net foreign currency-related loss of KRW 0.16 trillion, as a result of translation loss on foreign currency-denominated debt due to the rise in exchange rate. As a result, the pretax net loss was KRW 2.47 trillion. The net loss for the quarter was KRW 2.18 trillion, and the net profit margin was negative 24%.

Consolidated cash balance at the end of Q3 was KRW 8.53 trillion, up by KRW 1.04 trillion from the previous quarter. Interest bearing debt was KRW 31.56 trillion with an increase of KRW 0.75 trillion Q-on-Q. Debt-to-equity ratio and net-debt-to-equity ratio at the end of Q3 57% and 42%, respectively, rising slightly from the previous quarter's 54% and 41%.

Next, I will discuss market outlook on the company plan. Amid ongoing uncertainties in the global economy, the recovery of memory demand is being delayed compared to earlier expectations. However, entering the second half of the year, we are seeing more purchasing demand from customers who are in the final stages of inventory correction. Additionally, a strong demand for AI servers continues. Along with the added effect of new mobile product launches, the demand for high-density and high-performance memory products is increasing.

Meanwhile, as the reduction in memory semiconductor production takes effect to a meaningful level in the latter half of the year, prices of key products are stabilizing. Therefore, we believe memory industry is finally passing through the severe downturn and is now entering the stage of full recovery. While next year's demand conditions may still be under the influence of the macroeconomic environment, we expect such shipment growth in all applications after 2 consecutive years of correction.

With channel inventory in the PC market normalizing, next year's PC shipment is expected to grow by mid-single digit, driven by replacement demand. Furthermore, as decline in memory prices ease cost burden and as the AI PC market, which supports AI chips or AI software emerges, memory content per PC is expected to continue growing by double digits.

The smartphone market has entered a mature stage with the used phone market expanding and replacement cycles elongating. Nevertheless, considering the replacement cycle, next year, it is expected to grow in the mid-single-digit range compared to this year.

Additionally, in the latter half of this year, new product launches by major mobile customers and the increasing proportion of flagship products have accelerated the demand for high-capacity and high-performance LPDDR5 memory. In the long term, as the utilization of AI function increases in smartphones, the adoption of DRAM above 16 gigabytes and NAND above 512 gigabytes is expected to accelerate.

Next year's server market is expected to show a gradual recovery trend as server build demand improves, particularly among CSP customers and investments increased compared to this year. Although this year saw a temporary decline in demand for general servers due to the rapid increase in AI server-oriented spending within limited budgets, ultimately, investment in general servers is deemed essential for the utilization of AI services.

Therefore, starting from next year, there will be replacement demand for general servers as well as new investments. And with the intensifying technological competition in the AI market, investments in AI-oriented servers are also expected to continue. As IT device shipments shift to positive growth and lower burden of memory cost leads to increase in content similar to levels of previous years, next year's demand for DRAM and NAND is expected to grow by high-teen percentage.

Meanwhile, demand growth for this year has been revised downward from the previous quarter expectations to mid-single-digit percent for DRAM and high single-digit percent for NAND. The company's shipment growth is expected to exceed market demand growth, as we proactively respond to demand for high-spec products based on our technological competitiveness.

For the first quarter, our sales bit growth is expected to be around 10% for DRAM due to higher DDR5 sales. NAND shipment is expected to decrease by around [ 2% ] sequentially, with lower sales of low-margin products to improve profitability amidst muted demand recovery.

To respond to next year's demand, our company plans to expand stable production and support of products in which we have a competitive advantage. We are prioritizing investments for tech migration to 1anm and 1bnm and to secure HBM and TSV capacity in order to maintain a leading position in the DDR5, LPDDR5 and HBM markets next year. Accordingly, our company's CapEx for next year will increase compared to this year, but we aim to minimize the increase by considering investment efficiency and financial stability.

Yields of our 1a nanometer DRAM and 176-layer NAND have reached maturity for most of our products last quarter. Our next-generation 1b nanometer and 238-layer product yields are also improving smoothly according to schedule. Furthermore, following this year's mainstream product, HBM3, we started providing examples of 1b nanometer HBM3E products to our customers in August.

Our HBM3E boasts world-class performance in all aspects, ranging from speed, an essential specification for AI memory as well as heat treatment and user convenience. Furthermore, our HBM3E product has improved heat dissipation performance by 10% compared to existing products by applying advanced MR-MUF technology. It also supports backward compatibility, allowing customers to use it in systems designed with HBM3 without [ end ] design or structural changes. Based on our industry-leading HBM development and production capabilities, we are committed to full support of our HBM3E products to customers next year, solidifying our position as a key player in future AI infrastructure.

Regarding the export restrictions on semiconductor equipment to China, we have recently been notified by the U.S. government as a validated end user. With this revision of the EU, we believe that the uncertainty regarding our operations in China has been significantly resolved as we will now be able to import designated items without separate export licenses. We will continue to work closely with various stakeholders to prepare for external uncertainties and ensure smooth business continuity.

Next, let me share our ESG management activities and performance. Amidst the increasing global disclosure requirements related to sustainability, we have recently published a TCFD or Task Force on Climate-related Financial Disclosure report that outlines key climate change-related risks and opportunities as well as our response strategies.

The distinguishing feature of this year's TCFD report, the second one issued following last year, is the enhanced analysis of physical risks related to climate change. We have expanded the scope of physical risk assessment to include not only our domestic and overseas facilities but also over 60 key partner companies.

In addition, we have applied the latest climate change scenarios utilized by the Intergovernmental Panel on Climate Change in our analysis. We will strengthen our analysis and management capabilities regarding climate change risks and transparently disclose our climate response strategies, contributing to the transition to a carbon-neutral society. Thank you.

With that, we are now ready to take your questions.

[Operator]

[Foreign Language]

[Operator Instructions] [Foreign Language] The first question will be presented by Young-gun Kim from Mirae Asset Securities.

[Young-gun Kim, analyst]

[Interpreted] I have 2 questions. Now first is about the AI inference memory market and what does the company believe that this is going to have an impact in terms of the impact on the AI inference on the memory market overall?

And the second question is about the outlook for the AI server demand in 2024 and in linkage to that, also the outlook for the HBM server demand. And also in the future then in general, what does the company project for the HBM memory demand to be in terms of its share out of the overall memory demand?

[Unknown Executive]

[Interpreted] Now allow me to respond to the first part of your question. Now the question was about the shift of the AI demand into the inference market and what kind of impact it is going to have on the overall market. And now to -- stated from the beginning, I believe that it is going to be directly related to increased demand in memory.

Now as the number of parameters increase for the purpose of training, this means that the number of users will also increase, which would further drive the demand for inference as well. And this also means that there is going to be general shift from text-based generative AI to multimodal. And that also means that the language model itself is going to diversify further, meaning that not only the current large language model but perhaps also midsized or even small-sized language model, meaning that there is also going to be diversification in the language models as well.

So today, the demand for AI is mostly on chat, meaning like the chatbots. But then for the businesses, if the use of the AI can continue to increase, for example, for product solutions but also for the social media and social content and business marketing and smart assistance, this means that the data generated from all these usage is also going to explode. And that also means that we will be requiring even higher process power to process the train data as well as the inference data, meaning that the -- even the devices would then be requiring even higher and stronger power. And this is going to bode well in terms of increase in the memory content not only for the accelerators for the AI server but also for the general devices as well.

Now your second question was in relation to the outlook for the AI server demand as well as the HBM demand and also share out of the overall memory. Now in terms of the AI server, of course, it would differ by definition. But then in general, I would say that for the AI server, it is going to be in the high single digit or up to 10%.

Now in terms of CAGR for the next 5 years, then the projection now is that it is going to be by over 40% annually for the AI servers. But then again, that is the projection now. And as we see today, the players are increasingly jumping into the AI ecosystem, meaning that if there are also calls for AI-only data centers or even AI-only computing power, then the AI server market growth could potentially accelerate.

And for the HBM market, the current projection is an average of 60% to 80% growth for the next 5 years, so the CAGR of 60% to 80% for the next 5 years. Having said that, again, we are seeing signs that there could be potentially even faster growth in this market.

So the -- what we are seeing now is not a definitive demand because we are definitely seeing even higher possibility for accelerated growth in the HPM demand. So then when -- so in the end, the real growth might actually be higher than what we are expecting today.

And in terms of the HBM's share out of the total market, now of course, that would also largely depend on how large the overall DRAM market is going to be next year. But our assessment now is that out of the total market, HBM would account for about mid- to high teen percent. But again, there's also the possibility that this share might even be higher.

[Operator]

[Foreign Language] The next question will be presented by Ricky Seo from HSBC.

[Ricky Seo, analyst]

[Interpreted] And my question is about the inventory level per application and also what is the company's inventory level. And also in terms of the normalization, what is the company in terms of the time line for the normalization of the inventory?

And the second question is it appears as if there is a very rapid shift to DDR5 by the company. And does the company believe that this trend will continue? And also by the end of the year, what does the company expect the share of the DDR5 to be? And going -- looking ahead to next year, when does the company believe that the crossover will occur.

[Unknown Executive]

[Interpreted] Now I will respond to your question about the inventory. Customers' inventory is improving in general, but inventory sell-down is somewhat slow as demand recovers primarily for high-spec products, while customers' inventory is mostly legacy products.

PC and mobile inventory seems to be gradually coming down as customers try to sell them off. But server inventory is believed to have slightly increased due to soft demand for general servers compared to AI servers.

AI memory is one of the most challenging applications as the customers' needs are quite demanding with high performance and reliability requirements. Supply remains tight versus demand, not a good environment to build up inventory.

Now moving on to the company's inventory. The company's inventory level at quarter end showed meaningful decline compared to Q2. While demand remains soft overall, sales of premium products such as DDR and LPDDR5 and HBM have increased, but demand for products in the inventory like DDR4, LPDDR4 is slow to recover and inventory normalization has been moderate compared to other recovery times.

Nevertheless, it is projected to decrease significantly by the end of the year, with gradual demand improvement and clear impact from production cut in the second half. Inventory level is expected to normalize in the first half of next year, primarily in DRAM.

Now allow me to respond to the second part of your question about the shift to DDR5. Now for the overall market, it is expected to achieve the crossover to DDR5 in the first half of next year, so in the market, meaning the computing segment like PCs. So that is for the general market in the first half of next year. But then for the company, thanks to our product competitiveness, we were already able to achieve the crossover in the computing segment like PCs in the third quarter of this year.

And I expect the trend to continue, and this is also aligned with the shift in the product performance from 4,800 to 5,600 and also our high-density product readiness. And also, it depends on the successful supply of the 32 giga mono for next year's CPU and also the continuous expansion into 2025. So based on all these trends, we will continue to migrate to DDR5 very quickly.

And in the earlier question, we talked about the inventory. And then now for the -- so in this process, the DDR4's share is -- start -- is going to start to decline in the second half of this year, including on the production side as well. So according to this trend in the first quarter of this year, the supply and demand for DDR4 is going to be somewhat balanced.

And then now for the DDR5, of course, the demand crossover is going to be important. But again, looking at the current situation now, we are at a stage where supply is going to be very tight.

[Operator]

[Foreign Language] The next question will be presented by Nicolas Gaudois from UBS.

[Nicolas Gaudois, analyst]

The first one relates to supply. You are likely accelerating technology migration to 1a and 1b nanometer in 2024. Micron commented this would lead for them to a loss of net wafer capacity. Would that be similar for SK hynix? And could you quantify?

Is your assessment similar for the overall DRAM industry? And if so, how long do you think it could take for the industry to recover 2022 wafer installed capacity? At the same time, you're also underutilized as your peers are. What is the current base for how capacity utilization rates will evolve in 2024 for DRAM and NAND? And when could you be back, you think, to full utilization?

And then the second question relates to your China operations. We've had an update from U.S. Department of Commerce on permanent reprieve for U.S. [ semicon ] vendors to be able to ship and service stores to China for SK hynix. With that in mind and considering the other constraints, such as EV restrictions having separate process technology in Dalian versus Korea for NAND flash, what is your latest thinking about those 2 China fabs longer term? [Foreign Language]

[Woo-Hyun Kim, executive]

[Interpreted] Thank you very much for your questions. So I take it there were, in total, 3. Now first was about the wafer production reduction and also when do you -- when can we go back to the 2022 wafer capacity level.

Now for the company, this year, we are executing CapEx within the given scope while adjusted to product-specific priorities but the current investment and production volume are not likely to be sufficient to allow us to fully respond to the growing demand while maintaining technological competitiveness. As such, in 2024, the company will continue to operate with CapEx efficiency by focusing more on tech migration rather than on capacity ramp-up.

For DRAM, we are committed to increasing the portion of 1a nanometer and 1b nanometer to over half of total production by the end of 2024 by migrating to leading technology to increase production of high value add products like DDR5 and HBM3E that will lead demand growth in 2024.

Having said that, increasing investment and utilization rate will take place gradually in line with market conditions. And the outlook at this time is that it will take quite some time for the industry to go back to the level of capacity in Q4 2022, which was the peak before production cuts.

And your -- the second part of your question, I understand it to be about when we can go back to full utilization and then also based on this, what would be the outlook for production next year. Recovery from production cut will be gradual, in line with inventory level and market conditions. Given that NAND's inventory is higher than DRAM, conservative production will be maintained for NAND for the time being.

The industry-wide reduction in wafer input in the fourth quarter of last year was mostly in legacy tech. When the time comes to go back to higher utilization, we need to migrate to next-gen leading technology for which the unused equipment will have to be used.

And along this line, CapEx next year will also be prioritized for the tech migration rather than for capacity up. This will help turn around overall production growth in the DRAM and NAND industry to positive growth next year, but only by a single digit.

Now moving on to the third part of your question, which was about the company's plan on the China fab operations. As you have mentioned, it is indeed positive that uncertainties for our China operations have been considerably lifted by being selected as a VEU.

Now basically, our fab operation strategy warrants multidimensional review as it involves various factors like future geopolitical situations, market demand and the long-term need for fab space. We are working on a plan to utilize China fabs in consideration of future technologies, product mix options and customer demand.

We will remain on the path of production and investment cuts due to soft demand and high inventory this year, but future investment in operations will be determined based on the market situation and production facilities available at the headquarter.

[Operator]

[Foreign Language] The next question will be presented by Subin Lee from CGS-CIMB.

[Subin Lee, analyst]

[Interpreted] I also have 2 questions. First is about the DRAM bit growth, which I see that has once again outperformed the guidance in the third quarter following the second quarter as well. So given that the downstream demand recovery continues to be sluggish, what were the reasons or the factors that made it possible for the company to overachieve on the DRAM bit growth for 2 consecutive quarters? And the next question is, now to improve profitability and the free cash flow, what is the company's plan on operating the NAND business?

[Unknown Executive]

[Interpreted] I will respond to the first part of your question, which is about the DRAM bit growth in the third quarter. Now it is true that, overall, the recovery in demand has been slow. But then in the third quarter, in the smartphone market, especially after the inventory correction, there has been growth in demand among the customers to rebuild their inventory for the finished products. And I will say that the first factor was the fact that the company was able to very effectively respond to this demand.

And the second factor that I would like to point out is the fact that in the products where we have stronger competitiveness, like, for example, DDR5 and high-density servers as well as the HBM, the growth in these products was higher than average, which I believe was also quite conducive to driving bit growth for the company.

I will respond to the second part of your question. Now about NAND profitability, yes, it has been sluggish. Now NAND has been characteristically showing high price sensitivity where demand surges with falling prices. The industry tried to reduce cost through high bit growth, but the pace of cost-cutting decelerated with increasing investment burden from higher stacking.

We have particularly seen demand growth fall short of expectations over the past 2 years despite a sharp decline in prices. But supply growth had continued, leading to a sharp rise in inventory level and worsening profitability, prompting all companies to begin cutting production. We are now working on strategies for development production and investment for NAND that will allow us to respond to the changing market environment.

First, faced with constraints of cost reduction and profitability improvement, we plan to reduce business volatility by strengthening the high ASP premium product lineup and maximizing investment efficiency through appropriate resource allocation. So driven by the activities that I have just explained so far, I hope that we will be able to turn NAND into a sustainable business structure.

[Operator]

[Foreign Language] The next question will be presented by Sung Kyu Kim from Daiwa Securities.

[S. K. Kim, analyst]

[Interpreted] I also have a two-part question. First is about CapEx, which the CFO had already alluded to earlier. And the guidance was that the CapEx is going to increase next year. But then I would just like to ask for a more specific breakdown. For example, I believe that investment is going to be much more important in increasing the HBM capacity and also into the tech migration to 1b nano in DRAM. So can -- if the company can elaborate a bit more about your plan on investment in these areas.

And the second question is about NAND, which is also related to the earlier response. Now it was mentioned that in DRAM, turnaround was achieved in the third quarter. But then in order to improve the enterprise-wide performance, I would say that there is also a need for NAND turnaround. And then when it comes to the NAND business, then there is not only the SK hynix NAND business but then also Solidigm, which the company has acquired from Intel. So what is the company's plan for operation of Solidigm?

[Woo-Hyun Kim, executive]

[Interpreted] Thank you very much for your questions. I will respond to the first part of your question, which is about CapEx. And yes, as it was mentioned for the company, we also believe that investment into HBM and also into migration to 1b nanometer is the most important part of our investment. Now our CapEx this year increased where we needed to respond to demand for AI memory but otherwise decreased with the company-wide CapEx down by over 50% year-on-year. Looking ahead to next year, investment expansion appears to be unavoidable as there will be recovery in memory demand, and we need to adequately respond to demand, especially for products where we have a competitive advantage.

The size of CapEx itself is set to grow over this year for purposes of ramping up leading technologies, expanding HBM and TSV capacity, and securing mid- to long-term competitiveness. But we still plan to minimize the increment by exercising discipline and sticking to investment priorities. I cannot give you the specific number at this time, but we will make sure it will allow us to sufficiently respond to the growing market demand and continue to lead the premium market.

[Unknown Executive]

[Interpreted] I will take your second question about -- I will take your second question. The question was on the time line for a turnaround in NAND business and also the operation for Solidigm in the future.

Now regarding NAND, NAND has a higher inventory level than DRAM, and impact from AI demand is limited. It will thus take longer for the market to recover compared to DRAM. Now given this context, we plan to maintain conservative NAND production next year as has been the guidance, while focusing on improving profitability by optimizing product lineup.

For Solidigm, challenging business environment continued with an unprecedentedly low memory demand environment. Efforts were made to reduce cost through production cuts, personnel restructuring and to eliminate redundant efficiencies with the head office.

We plan to combine Solidigm's strengths, which is the diverse customer base and firmware technology with Hynix capabilities to optimize the eSSD road map and strengthen our product portfolio in time for market improvement. We will expand our competitiveness in the high-specification eSSD market including the PCI Express Gen 5 market this year, diversifying our NAND portfolio and expanding our customer base to secure a more steady business base.

[Operator]

[Foreign Language] The next question will be presented by Dong Hee Han from SK Securities.

[Dong Hee Han, analyst]

[Interpreted] I also have 2 questions on HBM3E. The HBM3E market is set to take off next year, and I wonder whether the company is ready to lead in the HBM3E market as it has done so in HBM3 market? And if yes, then could you also explain how and why? And the second question is, with the takeoff in the HBM3E market, is it expected that the prices in the other HBM or HBM3 products are going to fall?

[Unknown Executive]

[Interpreted] Thank you. Let me first respond to the question about whether we can continue our leadership in HBM3E market. Now this is 1 area where I can be quite confident, including both 3 and 3E. Our capacity for next year has been sold out, and we are still getting additional requests for additional demand. So at least on the demand side, we have a very strong visibility into next year. And what we are hearing from the customers and other market stakeholders is that the company has an overwhelming dominance in terms of the market share in the HBM3E capacity.

And now for the longer term, including next year, the company is currently engaging with various companies, both the AI players and other potential customers, about further expanding our business areas. And also what we are getting from the customer VOC is that the company inspires confidence and trust, thanks to our product competitiveness and our track record of large-scale mass production. And based on this performance, we are currently discussing with potential customers about becoming the primary vendor.

Now when we look at the evolution of the HBM demand, then going from 2E to 3, then 3E now to 4, we see that the product migration has been very fast. And in this process, the mass production quality as well as the product performance and also the overall experience have served the company very well in building up our advantage in this segment. And as a result, we are discussing the potential technical cooperation and also capacity with our key partners not only for 2024 but also all the way into 2025.

Now let me respond to your question about the potential decline in prices in the legacy products as we shift into a new gen product. Now looking at the product development cadence, then in terms of the HBM pricing, we can see 2 characteristics. One is that it is mostly large project-based and also that it is based on long-range planning. As a result of this, what we are seeing is that, in most cases, it is not a parallel development, meaning that it's not the kind of situation where we have the commodity, product and then the next-generation product existing together.

So for the new products, they would come with higher performance and also come from higher cost. And as a result, the ASP would be higher. And on the other side, this also means that the old products are not going to fall behind the market price.

Now especially given the fact that next year, the DRAM market is set to recover and grow very fast, then for the customers who would be adopting the HBM3 newly, then we can set the price according to the market situation. And then for those who are shifting from 3 to 3E, then I would say that this is going to be a different arrangement of supply.

But then when we look at the general cadence -- when we look at the general situation, then it is usually in terms of the generation change. Then it is usually on a 1-year cadence, meaning that from 2E to 3 and 3E. And again, in this process, the company has maintained leadership and superiority. So I believe that we are still in the position to do so. Now then to sum up, in the conventional DRAM, then perhaps there had been price interference between old tech and new tech, but that is not what we will be seeing in HBM.

[Operator]

[Foreign Language] The last question will be presented by Giuni Lee from Goldman Sachs.

[Giuni Lee, analyst]

[Interpreted] Now according to news reports recently, then the company is opposed to the merger between Kioxia and Western Digital. I wonder whether the reports are true. And if yes, then what are the reasons for the opposition? And that being the case, then how does the company plan to utilize the invested asset in Kioxia?

And then the second question is about the partial reversal in the inventory loss valuation. And so there was the reversal in the third quarter. So if you could share with us the specific size.

[Woo-Hyun Kim, executive]

[Interpreted] Thank you very much for your questions. I would first respond to the question about the Kioxia and the Western Digital consolidation. The company is not agreeing to the deal at this time in light of the overall impact on the value of the company's investment in Kioxia.

Please understand that we cannot disclose the specific reasons or comment on the deal process due to the confidentiality agreement with Bain. But I do wish to make one thing clear. We will be making the decision for the sake of all stakeholders, not only the shareholders but also Kioxia as well.

Now moving on to the second part of your question about the inventory valuation loss. There was partial reversal in the inventory valuation loss according to LCM in the third quarter, as DRAM prices rose and NAND price decline slowed. It was mostly for NAND products with a total value of reversal of KRW 60 billion.

Going into the fourth quarter, further inventory reduction and price stabilization are expected, which is likely to increase the amount of reversal in inventory valuation loss. Thus, it is also expected to keep contributing to improving business performance.

[Seong Hwan Park, executive]

[Interpreted] Thank you very much. With that, we conclude the SK hynix 2023 Q3 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.]