A single "worse-than-expected" performance comment from a Korean brokerage sent SK Hynix plunging 12%, putting the entire memory sector under pressure!

``` On July 13, South Korean local brokerage KIS released its Q2 earnings forecast report for SK Hynix. It estimated SK Hynix’s Q2 revenue at 80.9 trillion won, up 54% quarter-on-quarter and surging 264% year-on-year; operating profit at 60.4 trillion won, rising 61% quarter-on-quarter and 556% year-on-year. The numbers look impressive, but the problem is: market consensus is 65 trillion won, so KIS’s forecast is about 8% below consensus. This deviation directly triggered market turmoil. After the Korean stock market opened, SK Hynix shares quickly fell more than 10%, dropping below the 2 million won threshold. Compared to its historical high on June 25, the stock has pulled back 33% within just three weeks. HBM's High Proportion Actually Dragged Down ASP KIS explained the core reason for profit missing consensus: SK Hynix has a higher revenue proportion from HBM (High Bandwidth Memory) than peers, and its shipment proportion is also high, which led to its average selling price (ASP) increase lagging behind the market average. This logic seems counterintuitive—HBM is a high-end product, shouldn’t a higher proportion mean more profit? The key lies in pricing structure. HBM is usually priced through long-term agreements (LTA), with relatively fixed prices that do not adjust sharply in the short term. By contrast, standard DRAM and NAND prices in the spot market are more elastic, so when the overall market prices rise, the ASP increase for these products is actually higher. SK Hynix’s high share of HBM means that amid the market’s average price uptrend, it benefits less from “price increase dividends” than its peers. Meanwhile, spot prices for standard DRAM and NAND are still surging—KIS predicts Q2 DRAM average prices will rise about 30% quarter-on-quarter, and NAND about 50%—but SK Hynix’s overall ASP increase is held back by HBM contract pricing. Adjustment Due to LTA Recalculation, Not Deterioration of Fundamentals KIS clearly stated in the report that this downward adjustment is “not due to performance worries, but the result of adjusting forecast after including signed LTA contract pricing assumptions.” The report reads: “This is the result of realistic forecasting after incorporating existing LTAs into the price assumption, and not due to worries about performance.” At the same time, KIS downgraded its operating profit forecasts for 2026 and 2027 by about 9% and 11% respectively compared to previous estimates. However, the brokerage emphasized that as HBM4 begins mass shipments from Q3 onwards, market average prices rising will drive overall ASP higher, at which point SK Hynix’s ASP growth will return to market average. KIS forecasts that the operating profit margin will reach 74.6% in Q2 of 2026, a record high, and will continue to rise every quarter thereafter. The brokerage maintains its target price of 3.8 million won and an “outperform” rating, believing this forecast downgrade is only a short-term disturbance and doesn’t change the medium- to long-term upward earnings trend. "Surging 556% Yet Missing Expectations": A Crack in Market Sentiment A year-on-year increase of 556% is strong in any industry. But the logic of the capital market is: what matters is not how much profit grew, but whether it met expectations. The market had fully priced in the 65 trillion won consensus forecast earlier. KIS’s forecast is about 4.6 trillion won lower, essentially declaring “expectations were too high.” This triggered two concerns: first, the direct hit of short-term earnings missing expectations; second, whether the high proportion of HBM is a structural risk—as SK Hynix bets more on HBM, its ASP flexibility is constrained under fixed contract pricing periods. Adding to this, SK Hynix just started trading on the US stock market last Friday, so some funds that bet on the IPO took the opportunity to cash out after the ADR listing, further increasing selling pressure. Contagion: Hong Kong Stock ETFs and A-Share Memory Stocks Plunged Simultaneously SK Hynix’s decline quickly spread to related markets. In Hong Kong, the 2x leveraged ETF for SK Hynix fell more than 22% in one day, and the 2x leveraged ETF for Samsung Electronics fell over 13%. A-share memory chip concept stocks dropped in sync, with top names like GigaDevice, Beijing Junzheng, Longsys, and Biwin seeing falls of over 7%. But from a broader perspective, the memory semiconductor sector as a whole entered a correction phase in the past half month, with some individual stocks declining over 20%, entering technical bear market territory. Behind this are also global capital allocation shifts within AI and between markets, including a “sell chips, buy cloud” rotation and funds being drawn back by the Hong Kong stock market’s short-term rebound. Brokerages: Long-Term Thesis Unchanged, Focus on Profit Sustainability Despite causing market volatility, KIS’s overall stance in the report is not pessimistic. The brokerage believes that as the memory industry shifts to 3–5 year LTA contract structures, company valuation’s core driver will shift from “single-quarter ASP increases” to “how long high-profitability can be sustained.” The KIS report states: “From now on, we need to focus on profit sustainability. The expansion of LTAs is reducing long-standing earnings volatility in the memory industry.” The brokerage estimates that with a rising share of contract-based revenues, together with HBM capacity expansion squeezing overall supply, SK Hynix’s high profitability can be maintained long-term, and its valuation will be repriced accordingly. The 3.8 million won target price still implies considerable upside from current levels, and KIS maintains its “outperform” rating. Risk Warning and Disclaimer There are risks in the market, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investing based on this article is at your own risk. ```