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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Krisner. In

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Speaker 2: the US session, semiconductor stocks were down for a fourth

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Speaker 2: straight trading day. On Tuesday, we had the Philadelphia Semiconductor

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Speaker 2: Index dropping by four and a half percent. And if

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Speaker 2: you go back to June twenty second, when the socks

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Speaker 2: hit a record high, the index is down by more

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Speaker 2: than twenty four percent since then. And speaking of the

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Speaker 2: chip makers, this morning and Soul sk Heinex reported quarterly

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Speaker 2: operating profit rose a smaller than expected wait for it,

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Speaker 2: five hundred and fifty seven percent. Revenue, by the way,

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Speaker 2: also missed expectations for a closer luck, let's bring in

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Speaker 2: Bloomberg's when he Sue Winnie is one of our Asia

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Speaker 2: equities reporters. She joins from our studios in Hong Kong.

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Speaker 2: A lot to cover. Let's talk about the sk Heinex numbers.

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Speaker 2: I think the market initially was a little fused here

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Speaker 2: because these numbers did miss expectations. Yet right now in

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Speaker 2: Soul the stock is trading higher. What's your take here?

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Speaker 1: Yeah, so, well, first of all, the initial reaction, as

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Speaker 1: you just mentioned, five hundred fifty seven percent of a

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Speaker 1: quarterly profit jump, and we're still saying that this is

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Speaker 1: missing expectation by six percent. That means expectations really running high.

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Speaker 1: Now overall it is a bit of a miss. Seems

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Speaker 1: like investors are also focusing on the more polish side

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Speaker 1: of things, whether it includes s K high next saying

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Speaker 1: that they see prices really seeing a significant increase versus

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Speaker 1: the previous quarter. That was a positive takeaway, and investors

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Speaker 1: really like the fact that the company has finalized these

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Speaker 1: long term agreements with their key ten customers. So even

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Speaker 1: our Bloomberg Intelligence analysts were saying that they see this

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Speaker 1: growth to be more sustainable going forward from third quarter

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Speaker 1: because of these longer term contracts and that this will

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Speaker 1: likely going to be able to support the keep expending

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Speaker 1: that the company has been putting in. But also to

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Speaker 1: note that although we are seeing a bit of a rebound,

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Speaker 1: where we're coming from is really from a very low point.

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Speaker 1: Remember from the late June peak. The company has already

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Speaker 1: wiped off six hundred billion dollars in market cap. We're

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Speaker 1: seeing fifty percent of a drop from its June peak

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Speaker 1: as well, So from that point, we are seeing a

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Speaker 1: bit of a rebound not necessarily kind of being too

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Speaker 1: bullish or too bearish on the earnings itself as well.

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Speaker 2: So obviously this company is a major manufacturer of memory,

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Speaker 2: particularly the high bandwidth memory chips that are used in

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Speaker 2: AI applications, which takes us to the story this week

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Speaker 2: on the IPO of the Chinese memory chip maker CXMT.

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Speaker 2: That was quite a nice I think initially that stock

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Speaker 2: jump by more than four hundred and sixty percent is

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Speaker 2: there's still a lot of optimism now regarding CXMT, and

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Speaker 2: maybe the fact that even with other competitors like Samsung

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Speaker 2: and sk Heinez, that the market is still got this

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Speaker 2: robust demand from memory in a way that's not going

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Speaker 2: to harm any of cXt mpt's competitors. Am I wrong

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Speaker 2: about that?

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Speaker 1: Well, it does seem like most analysts expect demand to

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Speaker 1: be very strong going forward, at least through twenty twenty eight.

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Speaker 1: But the incoming competitor CXMT is definitely a very strong one.

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Speaker 1: We saw, as you mentioned, stocks popping more than five

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Speaker 1: hundred percent first day of debut, which in fact made

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Speaker 1: it the most valuable and the biggest company listed in

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Speaker 1: on shore China. So that is actually a big structural

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Speaker 1: change that we see for the Chinese market. It's symbolic

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Speaker 1: when you see that the onshore Chinese market has been

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Speaker 1: dominated by these financial names and now shifted towards tech.

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Speaker 1: So the debut of CXMT really marks that milestone of

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Speaker 1: China boosting that self sufficiency, self text sufficiency story. And

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Speaker 1: when it comes to competition, in fact, we are hearing

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Speaker 1: from analysts who have been rolling out these coverage of

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Speaker 1: the company expecting target price also quite high, and one

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Speaker 1: key reason is the expectation for them to take market

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Speaker 1: share away from the likes of Samsung, s ke Highnex

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Speaker 1: and even Micro So right now it is the fourth

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Speaker 1: biggest dram company in the world and with the market

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Speaker 1: share at about ten percent globally, but for example Nomuda

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Speaker 1: expecting them to take up to eighteen percent of that

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Speaker 1: global market share by twenty twenty eight. So you can

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Speaker 1: see that still lots of in enthusiasm in terms of

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Speaker 1: how this company can continue to ramp up. And with that,

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Speaker 1: we are also seeing further competition from these Chinese players

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Speaker 1: in other fields. We are looking at for example, just

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Speaker 1: yes to the day before, where we've learned that this

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Speaker 1: Shanghai based company is is mass producing these immersion deep

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Speaker 1: ultraviolet lithography machines, so the DUV machines and these machines

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Speaker 1: are critical for the AI chip making process. And now

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Speaker 1: it's taking on the likes of ASML, which has been

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Speaker 1: dominating the market with their so called more advanced extreme

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Speaker 1: ultraviolet so EUV products. But because the Chinese makers can

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Speaker 1: be mass producing this, they are able to actually be

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Speaker 1: able to pose a threat towards ASML. So these together

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Speaker 1: goes to show how potentially China's technology is improving and

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Speaker 1: advancing at a faster pace than what the rest of

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Speaker 1: market has been expecting.

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Speaker 2: I think that's an important point because as I recall,

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Speaker 2: the extreme ultraviolet tools from ASML, the EUV tools are

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Speaker 2: under export controls, so it's very tightly regulated, and if

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Speaker 2: you're a Chinese firm hoping to get this technology, you

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Speaker 2: simply can't have it, so that companies in China are

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Speaker 2: forced to innovate to try to find a workaround, which

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Speaker 2: takes us to the story on Moonshot and Kimmy K

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Speaker 2: three and I mentioned that because this is an open

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Speaker 2: weighted model, and today in the US we had Jensen Huang,

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Speaker 2: the CEO of Nvidia defending open weighted AI systems as

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Speaker 2: being a crucial part of developing the overall AI industry,

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Speaker 2: And I'm wondering, what are people say saying about kind

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Speaker 2: of open weighted models From the Chinese perspective, it seems

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Speaker 2: to me like this is a way to maybe create

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Speaker 2: a lot more competition on the price side. When you're

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Speaker 2: talking about a company like an open AI or an

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Speaker 2: anthropic that when a Chinese competitor enters the picture that

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Speaker 2: all of a sudden, you know your business may be

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Speaker 2: under threat. Yeah.

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Speaker 1: So for the Chinese makers, I guess the key point

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Speaker 1: is that they're cheap and because of just how their

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Speaker 1: model has been built, so it really is ramping up

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Speaker 1: kind of that price competition with their export so called

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Speaker 1: export token economy. So there's two steps right. Initially, investors

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Speaker 1: see this as a threat of them taking up the

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Speaker 1: market share of some of the other competitors, and that's

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Speaker 1: why we saw that when this was initially announced, it

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Speaker 1: provided this I guess, a shock to the rest of

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Speaker 1: the global AI chain and we saw shares fall right after,

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Speaker 1: but that actually soon came back just basically what we

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Speaker 1: saw with deep Seek as well, because investors now see

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Speaker 1: this more as an opportunity that if this kind of

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Speaker 1: cheap model can be utilized by more companies, that potentially

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Speaker 1: means that we can create further demand and then we

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Speaker 1: can do more with these models being more available. But

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Speaker 1: the tricky thing here is that if these US hyperskaters

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Speaker 1: start to use more of these cheaper models from China,

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Speaker 1: that can potentially mean that when they have a KPEX constraint,

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Speaker 1: they would actually prefer to use these more efficient Chinese

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Speaker 1: models then some of these US models. And when these

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Speaker 1: US models then don't have enough revenue, then that means

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Speaker 1: they might start to cut their case. And that's why

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Speaker 1: we potentially will see a negative effect because of these

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Speaker 1: Chinese competition as well.

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Speaker 2: Winnie, it's always a pleasure. Thank you so very much.

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Speaker 2: Bloomberg's Winnie Sue, who covers Asia equities for us from

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Speaker 2: our bureau in Hong Kong, joining us here on the

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Speaker 2: Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast.

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Speaker 2: I'm Doug Chrisner. Let's take a closer look now at

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Speaker 2: the earnings report from South Korea memory chip maker sk Heinez.

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Speaker 2: We caught up with senior analyst s K. Kim at

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Speaker 2: Die walk Capital Market, Korea. He spoke with Bloomberg TV

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Speaker 2: host David Englaise and ivonn Mann.

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Speaker 3: Ask, I know you just kind of tapped into this

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Speaker 3: earnings call that I had just wrapped up on SK.

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Speaker 3: What was the tone really from the c suite here

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Speaker 3: on what to look out for in the outlook?

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Speaker 4: Oh yeah, so s K heine, Uh, just on the

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Speaker 4: second quarter ownings. Actually the te con quoter owning. Uh,

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Speaker 4: they missed the consensus number, but actually it's not new. Uh,

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Speaker 4: it was it was referred in the market. Uh, but

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Speaker 4: it's mostly from the product mixed s K high needs

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Speaker 4: a higher exposure to HPM. So considering that there's the

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Speaker 4: demand for HPM three e uh un their second quarter,

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Speaker 4: that actually nlatively impact on the price increase. However, I

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Speaker 4: think that there's some disappointment is from the there's no

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Speaker 4: actually announcement on the additional shuld return. So I think

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Speaker 4: it masters anticipated some uh new editional shoulder a return planning,

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Speaker 4: especially for sure by back because of the writen correction

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Speaker 4: of the share price. Uh, it's pretty much overdone. However,

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Speaker 4: as as the CFO mentioned, uh that that they are

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Speaker 4: preparing some you know, shareholder return, but The thing is

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Speaker 4: that they just issued new ADA to share so that's

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Speaker 4: because of the due to them regulation, so they cannot

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Speaker 4: announce it some big announcement for the time being. So

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Speaker 4: I think it will be until you know, August, early August.

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Speaker 4: So that mean, uh, it's just some some delay. There's

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Speaker 4: no you know, it doesn't mean that they're not doing

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Speaker 4: you know, shareholder return. So maybe next quarter Salt quarter,

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Speaker 4: I think companies will announce it. Uh. I assume they

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Speaker 4: will announced the share buy back uh to invent the

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Speaker 4: you know, the stuff perfonmance and also actually their guidance

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Speaker 4: for salt quarter and the second half remain quite polish.

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Speaker 4: So considering some noise and concern in the market, especially

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Speaker 4: lit the land place, land Place can oversupply next year,

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Speaker 4: but the management maintain solid you know, and the demand

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Speaker 4: uh from data tenta driven the SSD UH, the different

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Speaker 4: type of the SSD. There's a lot of demand uh

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Speaker 4: that will continue until next year. So even the thought

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Speaker 4: quarter awnings, I think that we're mid the market estimate

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Speaker 4: and mostly the upcoming shore the return plan that should

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Speaker 4: be the catalyst for shure part.

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Speaker 5: Okay, why don't we Let's there are lots of facets

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Speaker 5: to talk about here. Let's let's zero in first on

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Speaker 5: the on the shareholder return and clearly to your point,

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Speaker 5: they couldn't give a lot of details because of uh

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Speaker 5: the current rules. What I think the CFO said I'm

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Speaker 5: slopping at some headlines is they are exploring options in

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Speaker 5: terms of returning the money. How much do you think

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Speaker 5: eskhis can afford to give back to share those in

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Speaker 5: the forms they have a buyback?

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Speaker 4: Yeah, I think they have a program basically returning fifty

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Speaker 4: percent pre cash flow. But the timing why the town

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Speaker 4: is until next year, as they announced the plan early

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Speaker 4: last year, so this is a three year tom so

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Speaker 4: they have actually one more year. But after also the

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Speaker 4: management guided for their target. It's you know, securing one

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Speaker 4: hundred trellion of net cash, you know, but the target

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Speaker 4: will be I think there will be a chiepover in

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Speaker 4: salt quarter, you know. So that means once they reached

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Speaker 4: that level, they were the more actively in a return

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Speaker 4: of the to the shoholders. So that's why we assume

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Speaker 4: that the soft quarter. You know, there is a timing.

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Speaker 4: I think their NETKESH as of now is about close

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Speaker 4: to sec seventy two on one, so maybe they will

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Speaker 4: leach their target level within the next quarter or sex

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Speaker 4: within the kind of half, so that will be some

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Speaker 4: positive catalyst and or so I think that one. One

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Speaker 4: other thing is that there's some more they didn't discuss much,

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Speaker 4: you know, details about the ATA. It looks a little

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Speaker 4: bit conservative, but it doesn't mean that they are conservative

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Speaker 4: in at a and then I think they will share

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Speaker 4: more details next time.

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Speaker 3: Ask why do you think we're seeing nine percent losses now?

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Speaker 4: I mean, I mean, the stock itself.

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Speaker 3: Has just been on a roller roller coaster, But what

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Speaker 3: do you think is driving I mean, it seems like

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Speaker 3: we're just extending those losses as you know, as we

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Speaker 3: were listening more into this earnings call.

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Speaker 4: Yeah, I think the key reason is the share share

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Speaker 4: of the return. So there's no clear guidance or the

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Speaker 4: you know, their plan.

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Speaker 3: Okay, there's also this sort of narrative that's emerging across

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Speaker 3: the chip space after of course, news of CXMT and

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Speaker 3: this blockbuster debut in China, of the Chinese competition that

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Speaker 3: could maybe somehow undercut you know, you know esk HIX

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Speaker 3: and it's market share, particularly in the d ram space.

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Speaker 3: I mean, what assumptions are you making on that front here,

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Speaker 3: and do you think those fears of Chinese competition are

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Speaker 3: they in some ways warranted?

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Speaker 4: Well, actually that I think that concern is a a

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Speaker 4: is overdone because you know, China market, China memory market

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Speaker 4: is also in big shortage, you know. And uh, you

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Speaker 4: know the global major memory maker city dam player, Actually

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Speaker 4: they are focusing on the US market because of now

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Speaker 4: the key demand is from the up US hyperscaler CSP

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Speaker 4: provider and some you know large consumer customers such as

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Speaker 4: the effor so you know, they actually they don't have

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Speaker 4: room to allocate their product to China, you know, anytime,

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Speaker 4: anytime soon, you know. And also the technology gap now

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Speaker 4: the ex empty they're just ramping up d d R five,

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Speaker 4: but their technology wide is a minimum to generation behind

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Speaker 4: of the major player and without EUV and there's a

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Speaker 4: very limited room for the or execution of the you know,

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Speaker 4: debandsion not technology. And also my view is that IP issue, Uh,

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Speaker 4: if Chinese maker tried to go outside China, I think

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Speaker 4: they would face some IP is just from the major

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Speaker 4: player because of the most of key dm IP is

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Speaker 4: occupied as a three player. So yeah, I don't think

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Speaker 4: that was some meaningful you know, a stress over next

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Speaker 4: two to three years.

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Speaker 5: Okay, let's let's get into that then. So clearly we're

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Speaker 5: in a shortage now. Clearly there's going to be a

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Speaker 5: shortage at the end of this year. Clearly most people

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Speaker 5: think that extends even going into the latter part of

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Speaker 5: twenty twenty twenty seven. But you know, looking at experience

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Speaker 5: and not just in chips, right, look at COVID. Everyone

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Speaker 5: thought when COVID started, we don't have enough masks, we

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Speaker 5: don't have enough vaccines. Look at when the war started,

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Speaker 5: we don't have enough oil. Look at you know we've

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Speaker 5: been okay, you know, the shortages tend to last shorter

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Speaker 5: than most people think at the start of the shortage.

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Speaker 5: That's my question to you is on a scale of

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Speaker 5: one to ten, where do you think we are in

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Speaker 5: this chip cycle on a scale of want with ten

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Speaker 5: being the end of that shortened cycle.

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Speaker 4: Yeah, I think that this is a kind of uh

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Speaker 4: where some structure changing demand. Right now, the you know,

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Speaker 4: the data center demand account for more than half of

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Speaker 4: the memory demand. So SOLbo dam account for fifty percent

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Speaker 4: of DM demand this year, and next year it will

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Speaker 4: be sixty percent. And also HPM HM. Yeah, this year's

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Speaker 4: HPM is letterly slow because of the price limited price increase.

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Speaker 4: But next year we expect a big jump in the

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Speaker 4: ASP because of the huge gap between commodity and the

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Speaker 4: HPM the margin. So in that case, next year, the

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Speaker 4: data center demand we cover more than seventy percent of

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Speaker 4: DM demands, you know. So this is a structure change

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Speaker 4: in the demand because of this data center customer. The

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Speaker 4: key big difference with the consumer conventional demand. The customer

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Speaker 4: is a there's no seasonality. Yeah, so the consumer product

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Speaker 4: always has diagonality, the weak versa you know, strong second

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Speaker 4: of they're reserting the bolletiality in the market and the

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Speaker 4: unbalanced in the inventory. But now this is a this

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Speaker 4: is infrastructure related demand, so AI infrastructure demand. I think

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Speaker 4: this is a tenure, medium ten, ten year trend. And

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Speaker 4: now we have a visibility to be the Yeah. And

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Speaker 4: the a t A uh mentioned is basically ABLA five years.

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Speaker 4: They have five year term a t A you know,

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Speaker 4: so over next five years, uh, this is the data

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Speaker 4: center driven demand situation will continue. And also technology wise,

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Speaker 4: the d M d M is really really big shortage,

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Speaker 4: you know, and the technology it's a you know, migration,

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Speaker 4: the more flow UH is a slowing down, you know,

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Speaker 4: because of them beyond one COMMA one cd M. I

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Speaker 4: think the migration is very difficult. And yeah, and also

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Speaker 4: the HPM HPM remained a portlet in the production, so

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Speaker 4: HPM four E especially there's a big increase in the

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Speaker 4: trade ratio, so even the memory makers are increasing capacity.

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Speaker 5: Yeah, before we wrap up, we don't have a lot

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Speaker 5: of time before we go to I just want to

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Speaker 5: ask you very directly, would you buy the stock at

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Speaker 5: this level? I'm looking at your price forecast this is

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Speaker 5: from June. Do you have an updated price forecast here?

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Speaker 2: Next?

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Speaker 4: Sure our update following their ownings and the guidance UH today. Well,

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Speaker 4: I think there's a number that not a major change

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Speaker 4: in our view because of fundamentally there's no changing in

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Speaker 4: the AI driven super psicher.

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Speaker 2: That was senior analyst as K. Kim of die Walk

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Speaker 2: Capital Market Korea speaking with Bloomberg TV host David Iglase

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Speaker 2: and Von Men bringing you their conversation here on the

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Speaker 2: Daybreak Asia podcast. Thanks for listening to today's episode of

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Speaker 2: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look

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Speaker 2: at the story shaping markets finance and geopolitics in the

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