SK hynix (000660.KS) — 2026Q2 FY2026 Earnings Call Analysis

76% Operating Margin, LTA Coverage Still Undisclosed

They call the LTAs a fortress and won't say what percentage of sales those contracts actually cover.

Thesis: SK hynix owns the physical bottleneck. HBM4 mass production started in Q2 at yields near mature HBM3E, and DRAM ASPs rose ~30% on high single-digit bit growth, which is pricing power with no volume give-back. Near-term the trade is long through two more beat-and-raise quarters. The risk sits in 2028: depreciation of KRW 4 trillion today against KRW 60.5 trillion of operating income, with M15X pulled forward, Yongin Fab 1 in early 2027, P&T7, M17 and a new cluster landing against LTA pricing of undisclosed coverage.

Verdict: LONG — Conviction: MEDIUM

Catalyst: Q3 print showing DRAM bits ~10% higher with blended ASP up on HBM4 ramp and 1c-nanometer mix, plus closed 2027 HBM pricing terms, which management says are 'progressing smoothly' with conventional DRAM strength influencing them.

Key Risk: 2028 supply wave: high KRW 40 trillion 2026 capex plus M17, P&T7 and a new domestic cluster triple or more a depreciation base that is KRW 4 trillion today, into a supply balance that LTA coverage cannot be verified against.

The Tell: Asked directly about oversupply from the new capacity, management said expansion will be executed 'flexibly in alignment with confirmed customer demand, we do not believe our medium-to-long-term investment plans will lead to oversupply right now.' The qualifier 'right away' concedes the wave lands eventually. The only question is when.

Detected Patterns

Pricing Power Signal: DRAM ASP up ~30% and NAND ASP up mid-50% on high single-digit and mid-teens bit growth respectively, in line with guidance. Customers absorbed the increases with no volume loss. That is pricing power in unit terms, not narrative.
Backlog Fortress: 10 customers signed LTAs at ~five-year terms with deposits embedded to enforce fulfillment, and management gates capex on confirmed customer demand rather than forecasts.
Capital Conviction: 2026 capex pushed to the high KRW 40 trillion range with M15X accelerated and Yongin Fab 1 cleanroom opening early 2027, funded from operations with net cash of KRW 69.4 trillion and debt-to-equity at 7%.
Backlog Quality: Management states plainly it 'cannot say how much of our total sales will be covered by LTAs.' Deposits exist to hold customers to commitments they would otherwise walk from. Capacity is expanding on contracts whose coverage is unquantified.
Mix Shift Spin: DRAM ASP growth came in below expectations and management attributed it to high value-add shipments pushed into the second half plus product portfolio changes, the two oldest explanations for a soft print.
Unsustainable Trend Confidence: 76% operating margin and 81% EBITDA margin are all-time highs, while management simultaneously accelerates capacity additions. Confidence built on peak pricing is exactly what preceded the 2018 DRAM collapse.

Friction Level: MODERATE_FRICTION — Both sides agree the quarter is clean and cash build is real. The disagreement is whether record 76% operating margin plus a KRW 40 trillion capex wave is a reason to own through the cycle or trim into strength.

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76% Operating Margin, LTA Coverage Still Undisclosed | Silicon Signal