[Non-English content] Good morning, and good afternoon and evening to those calling in from abroad. This is Park Seong-hwan, the Head of IR at SK hynix. [Non-English content] Welcome to the SK hynix 2021 Third Quarter Earnings Release Conference Call. [Non-English content] Before starting the conference call, allow me to introduce the executives present here with me today. First, Kevin Noh, CFO and Head of Corporate Center. Jang Hyuk-joon, Head of Finance. Myoung-Soo Park, in charge of DRAM Marketing, and Park Chan-dong, in charge of NAND Marketing. [Non-English content] Let me issue a disclaimer that all outlooks presented by the company are subject to change depending on the macroeconomic and market circumstances. [Non-English content] With that, we will now begin SK hynix 2021 Third Quarter Earnings Release Conference Call. Kevin will first present the earnings for the third quarter and the company's plan. It will then be followed by a Q&A session with the executives present here today. [Non-English content] Good morning, everyone. This is Kevin Noh, CFO and Head of Corporate Center. I will first brief you on the company's financial performance in the third quarter of 2021. [Non-English content] Favorable memory market environment continued throughout the year on the back of strong demand for IT products following the shift to non-face-to-face environment. The recent global supply chain disruption raised concerns of slowdown in memory demand. [Non-English content] Despite such market uncertainty, the company's third quarter revenue was KRW 11.81 trillion, up 14% from the previous quarter and up 45% YOY, the highest ever in a quarter for the company. The fact that it even surpassed the revenue of the record boom period in the third quarter of 2018 is meaningful, showing that although with some variability, the demand and value of memory products have continued to grow. [Non-English content] In the third quarter, the company focused on securing profitability. First, in DRAM. Despite sound demand in most applications, demand for PC products softened and price negotiations have been prolonged due to some customers' plans to sell down their inventory. Thus, the company's DRAM bit shipment growth in the third quarter was somewhat lower than guidance with a low single digit decrease quarter-over-quarter. ASP rose nearly 10% QOQ [Non-English content] For NAND, bit shipment growth was low-20% level, higher than previous guidance of high-10% as the company actively responded to the strong demand for server and new mobile products. ASP rose by mid-single-digit%, which helped pull up the quarterly revenue to over KRW 3 trillion, reaching record high for 2 quarters in a row. [Non-English content] For MCP, customers in the Greater China region continued to demand high specifications, driving sales of high-density products like 8 GB DRAM and 256 GB NAND. Along with the rise in memory price, it helped drive MCP revenue to a record high as well. [Non-English content] In the third quarter, there were meaningful performances not only in revenue but also in cost. Although DRAM bit shipment fell QOQ, there were yield improvement and portion increase of 1z nano, an improvement in unit cost as a rise in one-off labor expense in the second quarter was reduced in the third quarter. [Non-English content] For NAND, a double-digit improvement was achieved in unit cost, thanks to additional yield improvement and portion increase in 128-layer, base effect of higher labor cost, and evening out of fixed costs due to high bit shipment growth. Particularly for the 128-layer, the efficient transition to mass production increased its portion in sales to over 75% at the end of the third quarter, one quarter ahead of plan. This helped the NAND business turn to profit, and profitability margin also improved significantly. [Non-English content] As a result, the company's third quarter operating profit was KRW 4.17 trillion, up 55% QOQ, and operating profit margin 35%, up nine percentage points QOQ. Both figures are the highest since the fourth quarter of 2018. [Non-English content] Depreciation and amortization in the third quarter was KRW 2.71 trillion, slightly higher than the previous quarter. EBITDA was KRW 6.88 trillion, and EBITDA margin 58%. [Non-English content] There was a net non-operating income of KRW 426.8 billion. There was net interest expense of KRW 60 billion and net foreign currency related gain of KRW 400 billion. [Non-English content] Net profit before tax was KRW 4.6 trillion and corporate tax expense was KRW 1.28 trillion. Net profit was KRW 3.32 trillion with a net profit margin of 28%. [Non-English content] Consolidated cash balance at the end of the third quarter was KRW 10.01 trillion, up by KRW 3.38 trillion from the previous quarter. Interest bearing debt was KRW 14.29 trillion, increased by KRW 0.45 trillion QOQ. The company's debt to equity ratio and net debt to equity ratio stood at 24% and 7% respectively, showing an improvement from the previous quarter. [Non-English content] Next is the company's market outlook and plan. [Non-English content] The memory market this year saw demand grow faster than expected, despite supply shortages of some components affecting set build demand. [Non-English content] Demand growth for DRAM is now expected at low- to mid-20% level compared to the 20% projection early this year, while NAND is expected to grow over 40% compared to the low-30% level projection. [Non-English content] The continued upward adjustments in demand forecast this year is likely due to the cautious projection early this year due to various uncertainties following dramatic market changes in 2019 and 2020. [Non-English content] Looking at demand environment by application, bit shipment growth in the PC market is expected to be over 10% for the year. There was demand slowdown in the third quarter, led by the Chromebook as some component shortages affected demand for PC build. [Non-English content] The global supply disruption is expected to continue for some time, but upstream demand is expected to remain solid with recovery in demand for enterprise PCs, increase in online and hybrid working environment, and replacement demand for Windows 11 launched in October. In addition, deferred demand from this year is expected to ease the seasonality in the first half of next year. [Non-English content] In the mobile market, where demand remained volatile due to another wave of COVID-19 and component supply situation, solid build demand continued, thanks to new product launches by major customers and demand for higher densities from the Greater China region. [Non-English content] Smartphone sell through in the Greater China region, which was weaker in the third quarter, is likely owed to demand in waiting for new product launches and year-end promotions in the fourth quarter. Thus, it is expected to improve as we move into the fourth quarter. [Non-English content] The server market is showing a strong build demand following increased investment in new data centers this year. There are still uncertainties over the global supply chain disruption and inventory correction, but investment in cloud and data centers is projected to continue to next year with the growth of 5G network and MEC. Upstream demand is expected to remain solid as demand for server replacement accelerates following the adoption of new CPUs and enterprise demand recovery continues. [Non-English content] For server NAND, component shortage is somewhat affecting eSSD supply, the effect of which is expected to continue to the fourth quarter. As demand for eSSD grows, the supply disruption will lead to customers' push to secure more inventory, which can affect eSSD supply and demand. Utilizing our expertise and networks, the company will make the best effort to ensure stable supply of eSSD. [Non-English content] Considering current market conditions, the company is planning for a mid to high single digit DRAM bit shipment growth in the fourth quarter. This is reflective of the base effect from the decrease in bit shipment in the third quarter. Should there be changes in demand in the fourth quarter? The company will focus on securing profitability with a flexible response following the third quarter. [Non-English content] For NAND, a high bit shipment growth of double digits is expected again following the third quarter. It will enable strong cost reduction based on which we will maintain the surplus that we achieved in the third quarter and achieve profit for the year. [Non-English Content] When the fourth quarter plan is reflected, the company's DRAM bit shipment for the year is expected to be slightly lower than the market demand growth. NAND bit shipment growth is expected to far outgrow market growth, reaching nearly 60%. [Non-English content] Meanwhile, we aim to close the acquisition of Intel's NAND business within the year as planned with only the Chinese authorities approval remaining. The acquisition will lay a strong foothold for the company in the rapidly growing eSSD market and by securing R&D capability based on extensive understanding and experience in computing architecture. The company will focus on pathfinding to break through the technological limitations of memory and strengthen cooperation with global mega IT companies. [Non-English content] The consolidation will solidify the company's profile as the global memory chip leader by ensuring a mutually complementary product portfolio, as well as achieving economies of scale in its NAND business and by broadening its R&D capability. [Non-English content] Last is the company's ESG management activities in the previous quarter. [Non-English content] In step with the Ministry of Environment Integrated Environment Management System, the company early in the year has built an integrated system where we can review information and flow of all pollutants emitted from our sites. [Non-English content] As a result, the company's Icheon site became the first semiconductor company in Korea to receive government certification for integrated environment management system and approval criteria. [Non-English content] The company is also working to obtain technologies to reduce air pollutants emitted during semiconductor production processes, as part of which we have jointly developed with a domestic vendor, a system to reduce nitrogen oxide and ammonia. We are now currently expanding its adoption. [Non-English content] The nitrogen oxide reducing system simultaneously eliminates previously uncaptured nitrogen oxide and fine dust. It was first applied in some sites in October 2019 and is now expanded for a company-wide implementation. [Non-English content] The ammonia reduction system uses new technology, one that eliminates ammonia without using sulfuric acid, which was previously required. After being successfully systemized through effectiveness testing and demonstrations, the system started being applied at our sites from May 2020. [Non-English content] These are some examples of the company's ceaseless technological innovations and R&D with the aim of reducing environmental impact. Ultimately, the company will strive to establish a fundamentally green manufacturing process and will do its utmost to create sustainable value. Thank you. [Non-English content] With that, we will now take your questions. [Non-English content] Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant. The first question will be provided by Ricky Seo from HSBC. Please go ahead with your question. Yeah. Congratulations on the good performance and thank you for taking my question. Now, my question is with regards to the memory demand. I see that currently largely there are three issues with in relation to the supply of parts and components, the system IC issue as well as the package issues in Southeast Asia and the power issue in China. Because of these issues, there have been some impact on the production in the IT and automotive sectors. How much has these issues affected the memory demand? And from the company's perspective, how far along in the issues do you believe we are in, and when do you foresee that these problems will be resolved? Let me respond to this question about the memory demand impact. Now, regarding the global supply chain issues, now these are the extraneous issues that have been known for some time and that have also affected the automotive and the PC industry, somewhat so far. On the other hand, it could also have an opposite effect. In other words, it could actually turn some of the demand into deferred demand into next year or turn them into pent-up demand, which in turn could actually serve to solidify the demand next year. As we discuss with our customers, regarding the fourth quarter and next year, it appears as if the current issues have already been reflected into their plan. Especially in implementing our long-term agreements, there are no variables, I would say, in terms of the fourth quarter of this year and the first quarter of next year. The changes in demand are also largely due to the uncertainties in the global supply chain. As to when these issues would be resolved, it's very difficult for us to make that prediction, but I believe that it is important for us to maintain a broader understanding regarding the overall supply and demand dynamics. What I mean is that the memory supply flexibility is different from what it used to be. In the past, if there had been a supply chain issues, then it would impact both the set builder as well as the memory providers. Normally, what the memory providers would do is they would increase their capacity in order to drive down the cost and thereby increase demand. With the explosive growth in cloud demand, more recently, there has been increase in the overall demand. It was followed by some memory capacity correction in the industry. As a result, what we are seeing now is that the suppliers' capacity is largely moving in step with the demand. The demand flexibility is not like what we used to see in the past. The following question will be presented by Choi Do-yeon from Shinhan Financial Investment. Please go ahead with your question. Now, thank you for taking my question, and I would say that this is an follow-up to the previous question in order to gain more tips from the company. This is mostly regarding the equipment investment and your supply strategy. Now, regarding the investment strategy, I'm sure that they are also having some headaches in Yeouido because of many of these extraneous factors. Because of that, it is also very difficult to project the overall market demand or the market environment. Given that the extraneous factors are going to prolong the uncertainties for some time into the future, what is the company's CapEx plan and the supply strategy? Now, as you have pointed out, it is true that there are layers and layers of uncertainties today which make us very cautious in trying to plan for the future or project the future. I would say that compared to other semiconductor products, for the memory, there has been a sound supply, and also we have been running our business in a fairly predictable manner, meaning that there have been no supply shortages and we have continued with our usual support for the customers. Now regarding your question, for the CapEx, yes, there are a lot of things that we have to consider today. Given the fact that the lead time for equipment has become much longer than in the past, we are also making our business plan at least 2 months ahead of the usual timing. Also for the equipment, when it comes to ordering them and also having a communication with the equipment vendors, we are also doing that much earlier than usual timing. [Non-English content] Now, we are planning for and trying to respond to the DRAM and the NAND markets differently from each other. In other words, for DRAM, for the third quarter as well as the fourth quarter of this year and into the first half of next year, we intend to remain conservative in our business forecast and also likewise conservative in our response. But for NAND, given that we have the best among peers competitiveness in both the 128 stack and 176 stack products, utilizing this cost advantage, we intend to more actively respond to the supply and demand dynamics. Regarding the CapEx, it is based on these different thinking that we are currently reviewing various scenarios for the CapEx, but it has not been finalized yet. We are aware of the increasing capital intensity in this industry, so we are currently planning to maintain our CapEx to revenue ratio at around mid-30% level. [Non-English content] [Non-English content] The following question will be presented by Min Seong Hwang from Samsung Securities. Please go ahead with your question. [Non-English content] It was mentioned earlier that you have focused on securing profitability in the third quarter. Given the price increase in the third quarter, had the company decided to sell at a little cheaper price, then you could have sold more, but you did not. I believe that in and of itself is quite a change. Perhaps the stock prices don't see this continuing, in other words, don't see such trend continuing to the future. The company also mentioned earlier that the company intends to remain flexible in the fourth quarter as well. Do you also believe that the company can maintain this stance into the non-season, into the non-seasonality as well? Given the current supply and demand dynamics and the current inventory level, for how long does the company believe that you can maintain this position? If the company were to maintain such position, then there could be also some worries about falling market share. Do you believe that the company can maintain as such a, let's say, a profitability-oriented business at the expense of market share? There were some mention of equipment contracting in the first quarter of next year. Can you just give us some explanation or give us a view into the, let's say, the color or the tone of the discussions regarding the equipment contracting? [Non-English content] Well, that is a very important question, and likewise, it's a very important question for the company as well. To be frank, we believe that for the DRAM business, we do need to secure profitability for some time because we need resources down the road because we need to break through many technological challenges, and we must also continue to provide the kind of customer support that we have done so. Given the fact that currently the higher operating profit is not automatically translated into higher cash flow, we see that there can be some such reasons why the stock prices have been reacting hypersensitively to even the smallest changes. [Non-English content] Having said that, they also say that the memory is essential to the industries. We are very much cautious about artificially adjusting supply by adjusting the pricing. Given all that has gone on in the semiconductor industry, if we are also to be unable to have stable supply of memory as well, then the impact on the other industries will simply be too excessive. At the same time, when it comes to DRAM, the customer's inventory remains relatively high. For the suppliers, including SK hynix, the inventory remains historically low. We do believe that for the DRAM side, there is room for some inventory buildup on our side. For NAND, this is a different story because compared to the DRAM, NAND is still a growing market, and we believe that there is much room for further growth. Because of this now, of course, especially coming from the data center server side, we see that there is going to be much growth in demand coming from the applications related to the data center server. Our supply strategy for NAND is in step with such growth theme. [Non-English content] Now, in the past, utilizing the funds from the operating profit, we would invest, we would make CapEx-centric investment. Now I believe that for the memory market, we need to invest more in the R&D for the future. Rather than competing on CapEx, we need to invest in the R&D for new memory or the next memory. That is why it is very important for the company to secure profitability in both DRAM and NAND. Then such profitability, again, is for the sake of investing into the future, not simply to compete on CapEx or capacity, but to better prepare for our future. To answer your question then yes, the company intends to remain profitability centric for DRAM down the road. The profitability centricity will remain regardless of the cyclicality. [Non-English content] Now regarding the long term agreement for the fourth quarter and the first quarter. Now it's not about the, let's say, the changes in the share within the year, but then more about the changes in the business mix that are more interesting to us. We see that there are increase in the DDR5 and also for next year there are going to be increase in the high specification products like the graphics or HBM. Those are the changes in the mix that we expect to see into the second half as well. [Non-English content] [Non-English content] The following question will be presented by Nicolas Gaudois from UBS. Please go ahead with your question. Yes, sir. Good morning. Thanks for taking my questions. The first one is going back to DRAM. You had a slight decrease in bit shipments in Q3 and then in Q4, you're gunning for bit growth Q over Q. We actually forecast both Samsung and Micron bit shipments to decline in the fourth quarter. Could you help us reconcile the difference whereby SK hynix seems to be outperforming peers into Q4 for bit shipments for DRAM. For server memory demand, Intel last week spoke about some softness in the segment coming from China as well as IC procurement constraints, but also mentioned a strong backlog. Are you seeing similar trends on your side? If you are, when do you expect procurement for memory for servers to regain more strength? Thank you. [Non-English content] Now for the overall server market. Now we see that the upstream demand in this year as well as next year will remain solid and the investment into that will also continue. In the boom years of the server, for example, the data centers and the cloud, which was in 2017 and 2018. Many of the equipment that we're investing in around this boom year of 2017 and 2018, now these equipment, many of them will be up for replacement this year and next year. We believe that that will also drive demand. In addition to that, there will be a new CPU launches by again this year and next year, and there is also the move to higher specifications in memory like DDR5. We believe that overall, among all the applications, it actually remains the most solid in terms of demand. Regarding the comment about China, now, I would say that it actually depends on the different companies in China. Overall, the Chinese cloud market is moving along with the national plan to expand the IT infrastructure. Perhaps there can be some blips in the short term, but then over the mid to longer term, we believe that it will probably remain on a similar trajectory. Also there can be additional improvement thanks to COVID-19. [Non-English content] Regarding the bit growth plan for the fourth quarter, I did mention in my presentation earlier that there, we had initially planned for low single digit bit growth in the third quarter for DRAM, but then, it went in the negative territory. For the fourth quarter, our initial business plan was to achieve, low single digit. Now, we are now, expecting it to be mid to high single digit and not, from any changes in our plan or operations, but simply due to the base effect of the third quarter, where there was a drop in the bit shipment growth. That is the number that can be achieved simply by us, fulfilling our commitments to the customers. As we have seen in the third quarter, there could be some, let's say, unexpected changes in the customer's inventory plan or also in the negotiations. Depending on the situation, we intend to remain flexible as we have done so in the third quarter. Thank you. The last question will be presented by SK Kim from Daiwa Securities Capital Markets. Please go ahead with your question. I have two questions regarding NAND Flash. Now I see that in the third quarter, the company's performance far outperformed the guidance, and likewise in the fourth quarter, you are expecting another double-digit growth. The CFO has also mentioned that there are some parts issues on the supply side, and then on the demand side, there may be some inventory correction by the customers. Does the company believe that it is possible to carry on these two trajectories in parallel? In other words, the rapid increase in bit growth while securing profitability at the same time. The second question is the Chinese approval for the acquisition of Intel's NAND business appears to be delayed. Is there any update that you can share with us? Perhaps it is related to the China-U.S. trade dispute. There are moves recently in different countries to have more domestic production of semiconductors. Does the company believe that this would also affect the company in any way? Do you have any backup plans to these different changes? Now, regarding our NAND business, yes, in the third quarter and also in the fourth quarter, there will be a big increase in the NAND bit growth, and that is mostly thanks to the rapid transition to the 128-layer and also improvement in the yield. That is why we are able to achieve rapid bit growth in NAND in the third quarter and also likely to in the fourth quarter. The increase in the portion of the 128-layer products, it actually directly drives down the cost. This is also directly related to improved profitability. On the question of supply in the market. Now, in the third quarter, in the MCP market especially, there has been much growth in the high density products, which have also led to increase in the overall NAND sales. In the SSD side, the customers intend to build up their inventory. We believe that demand for SSD will remain strong as well. For the 176-layer, we are also getting the qualifications. We believe that, after the 128-layer, the 176-layer will also find a soft landing, which will continue to contribute to the improved profitability. Just one more comment about NAND. Now for NAND, we need to maintain strategic thinking. Compared to DRAM, we see that there is still more room for tech migration and also as a result, cost reduction. By having a rapid or more active tech migration and tech development, and also providing rapid supply to the customers, we believe that there is much value to be provided to the customers. Again, unlike DRAM for the tech migration, we believe that, in the NAND market, there is room to change the competitive landscape to be more stable for the company, through such tech migrations. By creating the synergy effect, with the acquisition of Intel's NAND business, we believe that SK hynix will be able to provide even better value to the customers. [Non-English content] Regarding the Chinese approval for the acquisition of Intel's NAND business, it's true that, out of the eight countries from which we need to get the approval from, China is the only remaining country. We had initially expected to get the approval by the end of the third quarter. As you have just mentioned, there has been some delay. We are still looking forward to receiving the approval in the fourth quarter of the year, so they will be able to close the deal by within the year. As can be seen by the unconditional approval received from the seven out of the eight countries, this consolidation in no way restricts competition in the memory market, especially in the NAND market. Rather, it actually strengthens the effective competition, which will serve to increase the value to be provided to the customers. Yes, there has been some delay, but we look forward to receiving the approval from the Chinese authorities within this year. Regarding the two to around three months of delay in the approval, the company does have some backup scenarios, but overall, we believe that we will be able to maintain our business plan without any major changes. [Non-English content] Thank you. That concludes the SK hynix 2021 third quarter earnings release conference call. Thank you very much for your participation.