SK hynix Inc. (A000660) Earnings Call Transcript & Summary

[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 2020 Third Quarter Earnings Results by SK hynix. [Operator Instructions] Now we shall commence the presentation on the fiscal Year 2020 third quarter earnings results by SK hynix.

[Interpreted] Good morning, and good afternoon and evening to those calling in from abroad. This is Park SeongHwan, the Head of IR at SK hynix. Welcome to SK hynix's 2020 Third Quarter Earnings Release Conference Call. Before starting the conference call, allow me to introduce the executives present here with me today. First, Lee Seok-Hee, CEO and President of SK hynix; Cha Jin-seok, CFO; Park Myoung-Soo, Head of DRAM Marketing; and Kim JeungTae, Head of NAND Marketing. 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 earnings release conference call. The CFO will first present the earnings for this quarter and the company's market outlook. Followed by the CEO with a briefing on the acquisition of Intel's NAND business and future plans.

[Interpreted] Good morning. This is the CFO, Cha Jin-seok. I will first report on the company's financial performance in third quarter 2020. Consolidated sales in the third quarter was KRW 8.129 trillion, down 6% from the previous quarter. Although demand for mobile memory recovered as expected, server DRAM and SSD demand for data center showed weakness, leading to a downward turn in overall memory prices. DRAM bit shipment increased 4% quarter-on-quarter. Procurement trend by server customers remained slow, but there was stronger demand for new product launches in mobile and graphics and increased purchase of consumer products by certain customers. The company was able to outperform the original shipment guidance by actively responding to such trends. ASP declined 7% quarter-on-quarter, mainly led by weaker price for server DRAM. NAND flash shipment grew 9% quarter-on-quarter, in line with the company's plan. Despite the slowdown of demand for data center SSDs, the company expanded sales of mobile NAND products and also of SSDs for newly launched game consoles. ASP fell 10% quarter-on-quarter as pricing showed weakness led by server products similarly to DRAM. MCP revenue rose 5% quarter-on-quarter, and revenue portion recorded 17%. Although MCP prices also declined, there was a double-digit percentage growth in shipment following demand recovery of smartphones in China. Operating profit in Q3 was KRW 1.3 trillion, down 33% quarter-on-quarter, and operating profit margin was 16%. Cost reduction continued from better yields of 128-layer NAND and further yield improvements of 96-layer NAND and 1Y nano DRAM on top of already matured yield levels, combined with the sales portion increasing for each of these tech nodes. However, it was not enough to offset the effect of price decline during the quarter. Depreciation and amortization in the third quarter was KRW 2.462 trillion, slightly up from the previous quarter. EBITDA was KRW 3.762 trillion with EBITDA margin of 46%. There was a net nonoperating profit of KRW 49 billion. Gain on translation of borrowings offset foreign exchange loss following depreciation of the U.S. dollar. Corporate tax in the quarter was KRW 271 billion, decreased from the previous quarter. Net profit after tax was KRW 1.078 trillion with a net profit margin of 13%. Consolidated cash balance at the end of Q3 was KRW 4.756 trillion, down by KRW 509 billion quarter-on-quarter. Interest-bearing debt was KRW 11.703 trillion, down by KRW 987 billion. Next is the company's market outlook and plan. In the third quarter, memory market, procurement trend of server DRAM and SSD weakened as major data center customers showed signs of inventory adjustment and weak pricing conditions continued. But moving into the later part of the quarter, there was seasonal demand for new smartphone product launches and spread of 5G smartphones by Chinese set makers, which made up for the relatively sluggish demand for computing products. In addition, new game console launches with increased DRAM content and first-time SSD adoption also helped to increase demand. Such demand trend per application is expected to be maintained into the fourth quarter. The relatively strong demand for mobile memory continues as smartphone makers compete over market share, and demand for PCs is expected to remain solid, thanks to strong sales of Chromebook. For servers, demand will be more moderate than in the first half. But customers' procurement for the year will be in line with early expectations. The company will focus on engaging with demand from mobile DRAM customers while further solidifying its position in the server DRAM market by leveraging quality competitiveness in leading edge technology. First, we will increase supply of 1Y nanometer LPDDR5, of which initial shipments have begun and lead the market for LPDDR5 uMCP combined with high-density NAND of 256 gigabytes or -- and above. For server DRAM, we will increase the revenue portion of high-density modules of 64 gigabytes and above. In particular, as next year's HBM demand growth is projected to show rapid growth at more than double of this year, we will maximize our HBM sales to maintain our leading position in the HBM market. For NAND, the company will strengthen response for a while towards smartphone products where demand is stable. We have started sales of 128-layer-based NAND products to mobile solutions and client SSD market in Q3 and are in the process for customer qualifications of server SSD. The bid ratio of 128-layer products is expected to reach around 30% by this year-end. And with further expansion of its portion, we expect 128-layer products to contribute more to our NAND profitability improvement. DRAM bit growth in the fourth quarter is planned to be up mid- single-digit percentage quarter-on-quarter, and NAND bit growth is planned to grow by low single-digit percentage quarter-on-quarter. This concludes my presentation on third quarter performance and future plans. Let me now hand over to the CEO to provide a briefing on the company's acquisition of Intel's NAND business.

[Interpreted] Good morning. This is the CEO of SK hynix, Lee Seok-Hee. Against the backdrop of a historic decision for the company about 2 weeks ago, I would like to take advantage of this opportunity to personally share with our investors and analysts about the purpose of the acquisition and our future plans. The NAND industry growing on the back of mobile-related demand so far is now at a turning point. We are now seeing the fourth industrial revolution manifested in such forms as the IoT and AI, and the foundation of this revolution is an unrelenting wave of data. For data that never ceases to be generated, the world's data center storage capacity has to grow rapidly to as much as 5.1 billion terabytes in 2030, which is a 5.7x growth in 10 years. The SSD, with outstanding performance in speed and power consumption, will grow to about mid-40%. And most SSD will be substituted from TLC-based to QLC or PLC-based that offer better cost per bit. SK hynix, making up for its latest start in NAND business than its competitors, has been making meaningful achievements recently, but there was also the limitation that due to unexpected market condition changes, the company was not able to accelerate as much as it wanted to at important inflection points of growth. To accelerate the pace of securing SSD technology and product portfolio, that will be the key drivers of NAND market growth in the future and to overcome the limitation of scale which would have been constrained for some time as a latecomer, the company decided on October 20 to acquire the NAND business of Intel. Intel is particularly competitive in the data center SSD market. It is leading the standardization of PCIe interface with its deep understanding of the overall data center ecosystem and software workload. It has strong firmware and controller technology as well as industry-leading QLC technology. In addition, its sales and marketing capability to support storage optimization technologies suited to the customer system-level led to a diverse and balanced SSD customer base. On the other hand, SK hynix has fast-tech development skill and stable ramp-up capability in NAND, as evidenced by our development of the world's first 128-layer 3D NAND, which led to growth of sales to high value-add applications. In addition, utilizing our in-house controller technology, the company has more than tripled its cumulative SSD sales by Q3 this year and is also achieving rapid growth in SSD business, especially for hyperscale customers. In mobile, the company is leading the high-performance, high-quality market with our MCP and UFS products and synergy with our DRAM business. Given the complementarity between the 2 companies' NAND business with minimal redundancy in strength and product portfolio, we will be able to extend our business opportunities into all areas of NAND. The penetration speed of SSD in data centers has been slow so far despite its superior performance over HDD due to the relatively higher cost. However, we can contribute to lowering the total cost of ownership for our customers by offering QLC-based SSD with excellence in cost competitiveness and can also broaden our addressable market toward cold storage area by opening up new business territory, the near line SSD. The company will secure a self-sustainable business strength in NAND within the next 3 years, and grow SK hynix's NAND revenue to triple that before the acquisition in the next 5 years. With this effort, we will try our best to earn the recognition as a top memory player, not only a DRAM leader. We will also secure a more stable cash generation capability by striking a better business balance between DRAM and NAND so as to establish future growth momentum beyond memory business. This acquisition will be closed in 2025 in 2 phases. First of all, in the first closing expected at the end of 2021, the company will acquire SSD-related technologies and products, including IPs as well as sales capabilities, which will immediately boost our NAND revenue and profitability. Until the final closing in March 2025, Intel will operate the Dalian fab and design technology for manufacturing. The Dalian fab based on floating gate process is projected to accommodate 2 to 3 more generations, even after the current migration node of 144 layer. Floating gate technology, in particular, has lower cell-to-cell interference and fine-retention characteristics, which combined with QLC, will enable a competitive cost structure. The Dalian fab will focus on addressing the cold storage area by maintaining its floating gate process, while the Korean fab will focus on the hot storage and mobile segment by maintaining the charge trap device basis. The 2 companies will also do their best to minimize uncertainties in tech development and fab operations in this period and facilitate the final closing. Total acquisition value is USD 9 billion, out of which $7 billion will be paid in cash at the time of the first closing. Around half of the acquisition amount will be covered through the company's reserved cash and cash equivalents and the operating cash flow to be generated. The remaining balance will be financed through outside funding, such as borrowing, while asset liquidation may also be reviewed if deemed necessary. For the medium term, the company will focus all its resources on strengthening its memory competitiveness and manage borrowing levels through prudent CapEx policies. Required CapEx for the Dalian fab is expected to be self-fulfilled through the operating cash flow generated from the sales of NAND produced from the Dalian fab. There are still important procedures to complete such as regulatory approval, for which we will make the preparation to ensure final closing of its acquisition. That concludes my presentation. Thank you.

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

[Interpreted] [Operator Instructions] The first question will be provided by Marcus Shin from Mizuho Securities.

[Interpreted] Now I must say that initially, my reaction to SK hynix's acquisition of the Intel's NAND business was negative, and it is based on such negative perspective that I have written up my report as well. But then the CEO's presentation has done a lot to ease my concerns, and I'm sure that it has also eased many of the concerns by the analysts as well today. So thank you very much for taking the time out to deliver the presentation today. Now having said that, I still have 2 remaining concerns, and I would now like to ask some questions regarding that. First is that now I understand that the CEO in your media interviews have also emphasized the value of the intangible assets of the NAND business of Intel, and I would say that when it comes to the intangible value of the business, then the core asset would be the human resources or the talent. And I would say that the big question now is how to prevent the drain or the turnover of such key human resources. So I wonder what the company has planned, if you could give us some more details about how the company plans to prevent such a turnover of the key talent from the Intel's NAND business. And the second question is pertaining to the efficient use of limited resources. Now I would say that the acquisition this time might also be quite a good thing for the NAND industry overall because, on one hand, it could, let's say, minimize competition and also increase market share for hynix. But then now in order to keep up the market share that gets the boost from this acquisition, you would have to keep investing into the technologies that have been developed by Intel. So that when it comes to the efficient use of limited resources, then doesn't this mean that you would have to divert away from your resources to continue with the research and development into the existing technologies? So I wonder do you believe that, that would be an efficient use of the limited resources?

[Interpreted] Yes. Thank you for the very good questions. Now first, let me answer the question about the retention of talent. Now once we get the regulatory approval within 2021, then the organization for the SSD business, human resources would change. And based on our experience of smaller acquisitions of the past, the company is well aware that retention of the key talent would spell the success or failure of the acquisition. Now when it comes to the details of the retention plan, I must say that I'm not at liberty to divulge them, but then I can tell you that we do have mechanisms in place in the contract to have the retention of the key personnel. And I can also further tell you that we will not rush into any premature consolidation, and try to maintain the existing systems as much as possible, so they will be able to ensure efficient management of the organization. And then to your second question about the efficient of resources, again, an excellent question. Now in my presentation, I did explain that the -- as part of the NAND business that we acquire, now this NAND business has its own cash flow and that can also be used to cover the investment that would be needed for the Dalian fab. And one thing we have to take note of here is the kind of time, hard work and resources that would require for the company to enter the high-end enterprise SSD market. Now if the company were to do this all by ourselves, and again, the kind of time, effort and the resources needed as well as the customer qualifications that we have to go through and even after the customer qualifications, the work would have to continue to fight for the market share. But then through the acquisition this time and through the portfolio that has already been built, now the company gets an immediate advantage of being able to address the high-end enterprise SSD market. And also utilizing the charge trap device technology of the company, we became the world's first to develop the 128-layer product and also the development work for the next-generation products are underway. And now so utilizing this CTD-based 128-layer product, and combining that with Intel's outstanding eSSD solutions, the company now stands to offer a very competitive eSSD products to the customers. So I would say that, that is going to be the one big synergy effect coming from this acquisition.

[Interpreted] The following question will be presented by S.K Kim from Daiwa Capital Markets.

[Interpreted] I also have 2 questions regarding the NAND business. And first is about the acquisition and especially how you're going to finance the acquisition cost. Now I have read the CEO's media interviews where you appear to be quite conservative regarding the investment in Kioxia, so then I wonder what the company's plan is when it comes to financing the KRW 7 trillion that you will be needing by the end of next year. So if you could give us more details about your financing plan. And in relation to that, do you believe that there will be any changes in the shareholder return policy in relation to this acquisition this time? And then the second question is about the NAND market condition. Now after the DRAM inventory adjustment and it appears as if there is going to be some demand rebound, and along with that, price rebound is expected in the first half of next year. Then for NAND, also, for the services, there is going to be a replacement cycle. But then also at the same time, the new capacity continues to run. And also, many players are now producing 96 layer, 128 layer. So also, there are some concerns of oversupply at the same time. So can you just give us your outlook on the NAND market in terms of the supply demand dynamics?

[Interpreted] Now the CEO will take the first question. And the second question will be taken by the person in charge of NAND marketing.

[Interpreted] Now yes, in the -- in my media interviews last week, I did mention that for the Intel NAND business acquisition, now this is an investment looking for the immediate benefits or the immediate advantages, whereas for our investment in Kioxia, now it was more of a strategic investment that was made based on a longer -- medium to long-term perspective. And of course, there is also -- so I'm not completely ruling out the possibility. But then I believe that it will be -- so we would be thinking within the framework that I have explained earlier in the presentation. And then now regarding the shareholder return policy, there is already the medium-term dividend policy that the company has announced and of course, because of this recent change, there might be some concerns among the investors about how or whether this is going to affect them as a result of the company now having a larger asset base. But then we will make -- so now the impact from this deal this time is not going to be reflected into our calculation of the free cash flow. And we will have further discussions at the BoD to make sure that it is done so.

[Interpreted] And now this is the CFO of SK hynix, and I would like to add a few more comments to what the CEO has just explained. Now the questioner was asking about our intent to utilize our share in Kioxia to finance the part of the acquisition cost for Intel NAND business. And yes, utilizing our share in Kioxia can be one of the options to finance the acquisition. But again, as the CEO has explained earlier, our investment in Kioxia was made from a medium to long-term perspective. So it was a strategic investment for that purpose. And so the acquisition of NAND business does not necessarily mean that we will be hurrying into disposing of the -- of our share in Kioxia to fund this acquisition. So even without the -- our share in Kioxia, we have -- we are fully capable of financing the investment into the NAND business this time. And now I would like to respond to your question about the NAND market outlook as well as the supply and demand dynamics. Now the demand for -- coming from mobile companies is continuing. So for the purchase, and build coming from the mobile companies, the demand continues. And also, as they continue to fight over market share and also the 5G technology continues to spread. We believe that the demand for mobile products as well as demand from PC market will continue into next year. And also in the second half, the on-prem -- the server customers, because of their need to use up the inventory, there was some slower demand. But then we also see the demand is picking up from the server customers as well. So thanks to the demand trend in per application, as I have just explained, we are expecting about high 20% level of demand growth this year. And also for next year, the expectation is about mid-30% level. Now when it comes to supply, now there can be various scenarios depending on several factors. So for example, right now, there is the 128 layer, but then also the possible technological complexity involved with the further tech migration and also the investment, the need for investment into new capacity as well as the timing for that. So there would be various scenarios. But having said that, we do believe that the demand for the supply and demand will come to a stable dynamic sometime in the second half of next year for NAND. But given that uncertainties continue in the market, we will try to preemptively and also speedily respond to changes based on our stable product mix. And for the supply/demand volatility, we would be conservative in our investment. But then for the conversion to the 128-layer as well as mass production of that, we will be more actively investing so that we will be able to utilize the 128-layer as the mainstream by the first half of next year. So based on this, we would continue to strengthen the company's influence on the major customers per application. And we would also continue to invest and develop the leading-edge technology so that we can also continue to have cost competitiveness.

[Interpreted] The following question will be presented by J.J. Park from JPMorgan.

[Interpreted] I also have 2 questions. Now as the CEO has mentioned earlier, the Intel's SSD. So you will be having the initial closing next year for the Intel's NAND business and also the SSD. But then currently, the Intel's fueling cost point is 100% produced in Micron fab, and it is the other SSD that is produced in the Dalian fab. So then after 2021 after the first closing, then does this mean that for SK hynix's charge trap and NAND, this will be supplied to the customers utilizing the Intel SSD technology? So would that be the right understanding? Or will you be then moving on to the floating gate technology of Intel? And then the second question is about the potential CapEx because now there are some concerns about the acquisition cost for this acquisition. And there are some concerns among the investors that this could also affect the company's investment into your other businesses, especially in DRAM. So do you believe that such concern is warranted?

[Interpreted] Now once again, thank you very much for the excellent questions. Now I did explain the meaning and the background as well as the plan for this acquisition in my presentation. And yes, the floating gate technology, combined with the QLC or even PLC, we believe will be very well suited to enter the cold storage market. So for the Dalian fab, we will be maintaining the direction that it is currently in. And then for the charge trap type, yes, we would also be utilizing this technology to continue to develop these solutions from the SSD business. But then having said that, before the closing is complete, we are still independently running our businesses as competitors, but then now after the acquisition is finalized, then yes, utilizing charge trap technology and to also continue to produce, so utilizing -- so utilizing the charge trap technology for the solutions developed by Intel, as that is also one plan. And also for the Dalian fab, as I mentioned earlier, because this will be then -- will so differ the cold storage, then this will be the focus segment for the Dalian fab. So this basically means that for the SK hynix, this will increase the addressable market for us. And regarding your question about the investment, particularly in DRAM business. Well, DRAM business itself has maintained quite a high level of cash generation capabilities so far. So depending on the market conditions, we would be implementing disciplined CapEx spending. So a lot of this would be subject to the market conditions. So right now, we remain conservative in our CapEx. But again, we will be making our decisions subject to the market conditions as well as any changes from them.

[Interpreted] The following question will be presented by Jong Woo Yoo from Korea Investment & Securities.

[Interpreted] Now I also have 2 questions. First is about the company's outlook on the memory price in the fourth quarter of this year. It seems that there is an expectation of a general recovery in demand. So can you just give us your outlook on the fourth quarter memory price trend, especially in comparison to the price trend in the third quarter of this year? And the second question is the company's plan to utilize EUV, especially because your competitor is now planning to apply EUV for the DRAM production. So what is the company's plan for deployment of EUV and also your equipment procurement?

[Interpreted] First, I would like to respond to your question about the DRAM price trend in the fourth quarter. Now in the fourth quarter, as the inventory adjustment continues, especially for server side, we believe that demand will remain soft. And as a result, the DRAM price will also remain weak continuing from the third quarter. But as the CFO had explained earlier from the bid perspective, so we are planning to maintain over mid-single bit shipment, so to make sure that there would be no difficulties or challenges for the business. So then for the DRAM price, now after remaining soft in the fourth -- until the fourth quarter this year, we believe that it will stabilize in the first quarter of next year. As the -- so on one hand, thanks to the demand that has been carried over from the fourth quarter of this year. And also with the near completion of the inventory adjustment, especially on the server side. So we believe that the price in the first quarter will be more stable than it is today or in the fourth quarter of this year. And as for the NAND price, in the fourth quarter because of the sluggish demand for SSD, we believe that it will remain relatively weak in the fourth quarter, continuing from the third quarter. But then starting in the first half of next year, we also believe that there is also going to be a general recovery on the back of stronger mobile demand.

[Interpreted] And this is the CEO responding to your question about the EUV. Now the M16 is nearing completion by the end of this year. This is located in Incheon. And in this, M16 fab, there is also an EUV-only cleanroom-ready, and equipment will be moved in on schedule. So we would be applying the EUV starting from the 10-nano fourth-generation DRAM production. So that would be the 1A nanometer. And for this, the development is currently well underway. And when it comes to the knowledge or capability regarding the EUV equipment, we believe that we have built up sufficient knowledge and capability, thanks to the EUV equipment that we have had in our research center.

[Interpreted] The following question will be presented by Do-Yeon Choi from Shinhan investment.

[Interpreted] I also have 2 questions. You did explain about your price projection. Now can you also give us more information about the inventory level that would be the basis of your price forecast? So if possible, can you give us the company's current inventory level by DRAM and NAND? And also, if possible, can you also give us an estimate of the customers' inventory level. And the second question is about the DDR5, which we believe will be supplied -- starting to be supplied in full starting next year. Then when does the company expect that you will be able to reach a meaningful volume shipment for DDR5? And also what is going to be the company's strategy for the DDR5 market?

[Interpreted] Now first, about the NAND inventory. Now at the end of the third quarter, given the increase in the production of 128 layer, our inventory level increased slightly quarter-on-quarter to around mid-3-week level. And then now looking toward the year-end, then again, because of the increased share of the 128-layer production. And also, thanks to higher productivity, we believe that the inventory level will remain slightly up but it would -- but considering also the sell through, then we believe that it will remain stable at around 3- to 4-week level. And as for the DRAM inventory, so at the end of the third quarter, which is also similar for the start of the fourth quarter, but the DRAM inventory level for the company at this moment is slightly below 2-week level. And regarding customers' inventory level, of course, you understand that we cannot be specific about that. But then I would say that the -- it would be largely in line with the market's view. And for the server, in the fourth quarter and also going into the first quarter of next year, there would be some inventory adjustment by the customers. So we believe that it will become a bit lower than it is now, but also for the mobile side, because of the continued U.S.-China tension and also with many of the Chinese companies filing for market share, it's likely that there is going to be growth in the inventory level on the mobile side. And next, about the DDR5 as we would be -- so we are starting the sampling to serve our customers in the fourth quarter of this year so that we can be ready for the customer qualification. And this work is currently underway smoothly. And then also, as we have announced in the press release at the early part of the quarter, we will be continuing our close cooperation with the leading SoC companies.

And then now from the market's perspective, the meaningful -- what we can meaningful volume perhaps will be in 2022 as we expect the market to really take off around that time. So then for the bit cost with DDR4, we expect this to occur sometime in 2023. Now for next year, we would be getting ready for the market evaluation in the first quarter of 2022 and then by the second half of that year, we would also be increasing our supply for the customer's pilot production.

[Interpreted] The following question will be presented by Nicolas Gaudois from UBS.

Going back to the NAND flash business in the context of the Intel NAND acquisition. Dalian is going to bring you, give or take, 70,000 wafers per month of capacity eventually. Does this imply that you would likely slow down the ramp-up of M15 next year for hynix's NAND flash capacity? Or this has essentially no influence on that trajectory, in your opinion, at this stage? And secondly, you talked about end demand in bit for NAND flash. Could you give us your updated view on DRAM for this year and next year? And whether -- within that, do you see customers starting to be concerned a little bit about supply for DRAM and therefore, engaging in long-term agreements?

[Foreign Language]

[Interpreted] Now this is the CEO responding to your first question. And as I have mentioned earlier, the -- so the Intel business and the company's business, so the -- between the 2 business, when we look at the portfolio of the businesses, and we see that there is almost no overlap between the 2. So the production in Dalian will continue and also the technological development for the next 2 to 3 generations of expansion will also continue. On the other hand, the investment into M15, this is where the charge trap-type NAND is being produced. So the investment decisions on the M15 will largely depend on the market circumstances as well as the product mix. So to answer your question directly then, the acquisition this time will not have an impact on any dramatic changes in the fab capacity.

And then regarding your question about DRAM supply as well as the LTAs, now for the fourth quarter of this year, as I have explained earlier, we are planning for bit growth of mid-single percentage. And actually, there is also the likelihood of this increasing a little bit, thanks to the demand coming from the mobile customers as well as the preparation for the future being made by the server customers. And in giving our projection for the supply for next year, I would like to link this to our overall forecast of the market. Now first, for the smartphones, as again, was mentioned earlier, because of the competition over market share among the different players, we believe that there is going to be strong demand in the first half. And for the server demand, yes, there is the inventory adjustment for the time being. But then business, so many say that the cloud company's business expansion continues. And also in the recent earnings release calls by the IT companies, they have all emphasized the digital transformation accelerating under the COVID-19 pandemic. And also they have emphasized a need by the providers to respond strongly to such a stronger demand. So we do believe that there would be stronger demand for multi-cloud or hybrid cloud, which also means that the demand coming from the server side will also become stronger. And then looking toward next year overall, then depending on the pace of economic recovery and depending on the pace of demand growth, we believe that the demand bit growth is likely to be in the high-teen level or up to 20% level. And also at the same time, because the production capacity -- we believe that the production capacity next year will be limited because of the conservative investment trend of this year. So this means that for some applications or some products, a product idea supply shortage might actually occur after the second quarter of next year. Now for the company, we are planning for a mid-teen percent bit growth for DRAM next year and also depending on the mix by application, we will try to proactively respond to the demand coming from the different applications. And as for the LTA, thanks to the quality competitiveness that has been proven by the market as well as to customers, we were also able to just about complete the discussions for LTAs for next year. And I can tell you that the share of LTA next year is going to slightly increase.

[Interpreted] The following question will be presented by Hyunwoo Doh from NH Securities.

[Interpreted] Now I also have 2 questions. First, regarding the U.S. government sanctions against Huawei, I understand the SK hynix has requested export license from the U.S. government, can you give us a progress update on that front? And my second question is to the CEO. Now we see that in looking at the supply and demand dynamics, it seems as if the memory cycle has become shorter compared to the 2 years before that appears that it is only 1 year. So what do you see as the drivers of such a shorter cycle? And what is the company's plan to respond to this change?

[Interpreted] Now first, regarding the license for the Huawei export. Yes, as you already know that the SK hynix has already requested the license so that is necessary for our business with Huawei, and we have requested a license from the U.S. government. And regarding that particular topic, please understand there is really no progress update that we can give you at this point.

[Interpreted] And yes, about the memory cycle, once again, a very good question. So thank you for that. Yes, the memory cycle becoming shorter from 2 to 1 year and why the shorter cycle? Well, I would point to, first of all, the continuous technological development. And perhaps also more disciplined CapEx operation in the face of uncertainties. And also, because of this, we also see that the suppliers' bit growth continues to fall every year. And another possibility is a more advanced supply chain management within the industry. So I believe that it is a combination of these factors that have perhaps led to the shorter memory cycle. And as to the company's response to this, our response will not be too much away from what is going on in the market already.

[Interpreted] That brings us to the end of the Q&A session. We will conclude the SK hynix's Q3 2020 Earnings Release Conference call with the CEO's closing comments.

[Interpreted] On my first day as the CEO in 2019, I have stated to the members of SK hynix, my goal of achieving corporate value of KRW 100 trillion. And now I think we are on the verge of a new turning point where we can accelerate our achievement of that goal. We now have an opportunity to accelerate revenue growth and improve profitability for our NAND business, just like the DRAM business, which, unlike the past, is now able to generate profits despite any economic fluctuations. The expected synergy effects from this acquisition will bring both economic and social values to not only benefit the global ICT industry, including our customers and partners, but also all the stakeholders including our shareholders, local communities and the members of SK hynix. Amidst a global pandemic, sustainability has become an important topic, not only for enterprises, but for the world. One of the key issues among sustainability is the dramatic climate change, which is being brought up as a critical matter threatening the very survival of human kind. Therefore, the company has decided to join RE100 in order to proactively respond to this crisis as we believe more contribution is needed beyond merely emphasizing with its seriousness. The company aims to secure all of its power consumption in renewable energy sources by 2050. Meanwhile, it is notable that the general SSDs and low-power consumption SSDs consume 50% and 94% less power than HDDs, respectively. If all HDD-based storage in global data centers were to be replaced by low-power SSD in 2030, carbon dioxide emission could be reduced by 41 million tons, which is estimated to create the equivalent of over KRW 4.2 trillion of social value. The company will try to realize such social value by driving the conversion towards SSD in the data storage market. Given that sustainable growth cannot be achieved by creating economic value alone, especially in this changing environment, SK hynix will also create social value with ESG management. And as we are now poised to take flight as a true global memory company with a pair of strong and balanced wins, DRAM and NAND, I hope for your continued interest and support as we try to recreate the miraculous turnaround story of DRAM, this time in NAND. Thank you.

[Interpreted] That concludes the closing remarks and the earnings release conference call. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]