Special Edition: SK Chairman Chey Tae-won on SK Hynix's US Debut

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1:35Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Bloomberg Audio Studios. Podcasts, radio, news. Welcome to our Bloomberg television and radio audiences all around the world. SK Hynix, the biggest first-time U.S. share sale by a foreign company, setting a record. And we are joined by SK Group Chairman Chae Taewon. Congratulations. Oh, thank you. Thank you, Ed. I think a sensible place to start is why now? You've been thinking about a U.S. listing for some time, but why put SK Hynix in front of U.S. investors now? Well, we've been waiting for that for a long, long time.

2:20And since I acquired that Hynix about 15 years ago, so this is one of our milestones. Well, we have to go to access to the U.S. capital market. So now, dream comes true. So people are asking why now, but, well, this is kind of the earliest moment we can have. The earliest moment possible. $26.5 billion is a lot of money. But in the context of SK's commitment domestically in Korea and internationally, not so big. Can we expect multiple returns to ADRs, the sale of multiple rounds of ADRs? Well, yes, I expect we can deliver those things too. So we'll try to expand our ADR size and also battery. that actually requires a better return.

3:21So once we have a better return, then there is more demand. So first thing is that, well, we have to keep the stock price stable. And, well, hopefully in the long run, then, well, we can have that upside potential. And I see that, well, this moment. So this is the AI era. So this AI era is actually spiked that a lot of demand for the memory. So this is the kind of time for us. Is this something near term? Did you, with the leadership group and your CFO say, we will need to do this with regularity or you haven't discussed that yet? Well, to tell you the truth, yeah, we've been discussing that one, but I cannot just say that in detail yet.

4:12I appreciate that, Jem and J. The U.S. listing gives SK a new source of equity capital. But what about the broader U.S. capital markets? Do we see SK Group, SK Hynix as well, become an issuer of global bonds, global debt? Well, that's possible. But I guess right now, we have enough cash for the SK Hynix. Some other companies could actually be issuing another bond and access to the capital market. Chairman Che, bear with me. I'm going to get this out for our audience around the world. This is why we're all here. This, you can't even see it. Tiny, HBM4E, high bandwidth memory, 12 layers in this case.

5:04Right. The whole world knows about this. how severe and how tight is the supply right now of HBM? And more importantly, how long is that going to last? Do you have a sort of a year where you see the supply situation changing? Well, if you really understand the old requirement and the condition for that HBM memory type, and you have to understand that the AI side first. so people know that large language model but that large language model is very important things but I guess in the future the more we're using that AI and the AI actually requires more the inference phase yes but I see that memory the main is KB caching so it generated a lot of KB caching due to that keeping the performance of the LLM, then you should have that large volume of the KB caching and you have to actually, this is kind of a memory in people that is the same thing.

6:22We store that memory in our brain and AI need that those kind of KB caching that memory has to store somewhere. So if you had a better size of the memory, then it had a better performance. It's as simple as that, and the memory cycle is turning into a different cycle. I shouldn't say that the cycle is a different moment. to me. So, and back then, the old days, the memory chip is, memory chip demand is actually depends on the number of people, number of the hardware set. That was a consumer electronics story, in part. Yes. Boom and bust. Yeah. Well, mostly, well, you had that to your own smartphone, but you don't need that to, well, tens of different type of the smartphone.

7:15You're only using that to just one, like a PC. Right. So, the demand is actually limited by the number of people. But in the AI era, it's different. You may use your own AI agent probably in a few years from now. You might have tens or hundreds of different agents of your own agent. So, every agent needs a lot of memories because they created a lot of KV caching. So you have to actually store somewhere that actually needs a huge amount of the memory. Well, that's the AI era. So I guess that memory business is turning to a different stage. You still called it a cycle, though. That's the demand side.

8:07A reason to do the ADRs is to raise capital in part to boost capacity. Your industry peers, Micron, had said very recently they have line of sight to supply improving. 2028, the other side of 2027, in part because of the capacity that is coming online. What does SK Hynix see? Well, we didn't talk to our customers. So we just announced that a few months ago we're going to double up our capacity within five years. So that means that we've been doing the business more than 25 years. And then, well, in the next five years, we're going to double up our whole capacity.

8:56Well, people see that that's unrealistic and probably the oversupply and people worry about it. But my customers say that that's not enough. We need it more. So double up is not enough, actually. Well, they want us that we're quadruping five times, six times. So the more is the better because demand will exponentially grow in the future. Based on that customer demand, what do they see then? If they are the crystal ball, the lens to the future, they believe that their level of demand will stay where it is 2029, 2030. How long does supply tightness respond to that? Well, nobody expected, I don't know, what's going to happen in next years.

9:51But I'm saying that, well, I have some confidence that the demand will grow. And our supply capacity is never going to catch up. so I don't know how long but well I think it's going to be until our society human society has set some settlement with AGI then well I guess that the world does kind of normalize all the cycles but anyhow that until then well we need a lot of memories. You're with us live on Bloomberg Television and Bloomberg Radio worldwide, and we're in conversation with SK Group Chairman Che Taewon, and we're talking about a record for SK Hynix in terms of USADRs. Take me back to 2012.

10:46SK acquires Hynix. At the time, people questioned that decision. What did they not see? What did they miss that you saw about the potential of that memory market? That's kind of a bold decision, and I think that I made it a really risky bet, in a sense, financially. Because the companies really suffer from that deep debt and also have to be fighting with its own survival. Because 15 years ago, that company is under control by the banks. simply chapter 11. Yes. In Korean sense, what we're doing, the banks, it's a workout program. But they're doing that more than 10 years in the workout programs.

11:45That actually means that nobody really wants this portfolio because it's too risky. The reason why is, well, memory business is cyclical. And that actually suffers from that uncontrollable cyclical business cycle. And it requires that every year, multi-billion dollar capex, no matter how. So even though you don't make the money, but the business requires that the machines expand and adapting new technologies and buying the new equipment. and they have to spend a huge size up to the capex. That's why nobody really wants those kind of dangerous business. But you did. Yes. I see it a little bit different because, well, if you see that there were a different angle, this memory manufacturing is most sophisticated the manufacturing business.

12:47So if you really do it, then you can do anything. If you crack the technology, the process. Yes. And also the whole process of that manufacturing. It actually, well, once you make the little chips, but a chip inside that, 380 billion transistors in it. Yes. So that's the business. So how are we going to create those kind of things? and it's a small size in the silicon things and we actually put it in the huge size of the transistors. That's a state of art of the technology. So once you're doing that and I can manage anything and I can actually challenge anything. Also, in the digital world, create a lot of memory in the future.

13:44Right. And you saw that. Yes. I just bet on that. And, well, people needed the memory. You talked about managing the process and the idea that, you know, at that time in 2012, debt was a very big consideration in the market. It was boom and bust, cyclical. How much is this, you've been asked about this a lot, but the idea of the long-term agreement with customers changed that history. Right. but there is a supply shortage and every customer wants to have to secure their own supply and cover up their own demand so they are asking us that we need some kind of long-term contracts it's not suggested by us and they actually require that it's them that's making the proposal not SK not SK so they are more willing well we also love to do it because it's not cyclical business anymore.

14:45If we had some long-term agreement, even though it's a downturn and we still maintain our volumes and the certain level of the price. So that actually gives us a different momentum. And that actually created another opportunity for we can change it to some, our business model even. What about SK's commitments? Where are you going to prioritize your investment domestically versus here in America, not just with the proceeds from this U.S. share sale, but generally with your balance sheet? Generally, outside of the Hynix and the most important matter is an AI data center business. So we announced almost a$1 trillion investment in the next 10 years to set up with AI data centers.

15:34My target is about 15 gigawatts in Korea. I guess at the 5 gigawatt outside of Korea so I'm looking for that whatever area including US and if there is a good chance the problem is that the main thing is power so power and the price of the electricity that's a very important matter with these AI data centers but once we build that AI data centers And then, well, it can actually synergy between the memory chip and this infrastructure matter. That's what I'm doing in the future. We're live on Bloomberg Television and on Bloomberg Radio. And this is Bloomberg Tech in conversation with SK Group Chairman, Che Taewon.

16:26Thank you. You talked about the data center, the issues of the data center. This is an SK Group approach. Yes. So you're talking about SK Group looking more broadly at the AI stack. Not just memory. Yes. Where else will you focus your attentions? Well, a company like SK Telecom, and, well, they're doing their study or putting their resources on their own LLM. Also the applications and physical AI side. Yes, robotics. Yes, and the healthcare side. well there is a well there is a bunch of opportunities and well we've been actually trying to uh pursuing that the world all those business opportunities in the future an issue here in america and in korea is talent there is a deficit of skilled workers in the chip industry in america and a company like micron knows that there is a lot of talented people in korea how are you going to manage that and again, your investment plans for here in the USA?

17:37Well, to secure that, bring that more talent. ADR is one thing, one good. One option. Yeah, options. And ADR gives us some kind of financial play options. Like even the stock option, then we could actually using that ADR directly. Right. Right. So it actually attracted a lot of people, a lot of talent to our growth. I see the ADRs is also about public perception of SK. Right. That's another thing. And the perception is matter. So we have to spend a huge money on recruiting a lot of good talent. And I don't really care about the talent. It could be that the US, Japan. They could be anywhere. It's everywhere.

18:36So I try to recruit much more talent. And that's the kind of important things. And I'm asking that our CEOs to, well, your job is to secure that talent in the future. Let's just set the doing. And, well, we're going to create a lot of jobs. And, well, we announced that more several trillion dollar investment plan for in the future. So we need a lot of talent. Chairman Che, what is the biggest technological advantage that SK has built?

19:11Or one of the memory side? On the memory side. Okay. Process? Design? I guess that, well, you cannot just say just one thing, but... What's the most important thing? Well, one team. So, Hynix, well, I really focused on the, we could bring that to just one company, one team. So, this is a simple business model and memory manufacturing. So, we can actually emphasize that we are just one team. And so, I think that the one team made it with a really one big historical achievement now. So, that's what I'm saying. And that's the most important matter. Yeah, you can say that there was design capacities and process technology.

20:01This is right. Or working with TSMC on the base die, which the others do not do. Also, well, we don't actually compete with any customers. You do not compete with any customers. No. And you feel that's important. Yes, that's important. And that actually gives us a lot of room to actually partnership in the future. So that's how we can actually maintain all those partnerships. Bigger picture. Can you catch up with Samsung?

20:34I don't want to answer those kind of questions. So I don't, well, my main goal is that I have to make our stakeholder happy. Yes. Well, in order to that, there is a certain part is a competition, but I'm not really wanting to have that. Well, that's my main goal. That's difficult, though, Chairman, because the shareholders love the profit. The customers want more capacity, more supply. Those seem to be competing ideals. That's what we call the stakeholders. So it's not only the shareholders. So shareholders want that great returns, right? And the customer wants that, well, cheap product and enough supplies.

21:22But, well, I cannot just satisfy every time, every stakeholder. But, well, we had a certain balance. So, you know, between that stakeholder and what I'm really seeing that, well, I also have to make that my members, members of the company, well, they have to be happy. So happy company makes the happy result. So that's a simple. I need to say, Chairman Jay, the ADRs, one stakeholder, the U.S. investor, the ADRs indicated to open$177 per ADR. Of course, the ADRs were priced at$149. The memory market is also evolving. So while supply is tight, there's a very broad look at other technologies. I'm very interested about SK's, Hynix's approach to NAND and flash memory and the role you see that technology playing going forward.

22:19Right. So it's a different type of the memory storage. So DRAM has their own functions, but that's instant things. and like people, you just remember the certain numbers and if you just prepare your exam, then you had a real good memory on those certain numbers and a certain target. But you also needed a lot of other memories. And when you was young, then you had some memories. But, well, that memory needs not just that inner brain, you probably store that somewhere. But like, well, AI, AI needs a lot of storage. So DRAM has instant response and instant type of memories that you should store there.

23:14But if you had a more big size, and we call that the cold data. So if it's cold data, then you could actually store. Yeah. And where is the innovation on that other side? Oh, there's a lot of technologies. And the problem is that, well, in an end, it actually, well, response is needed a lot of the time. That means the latency. So in order to ensuring that the latency, well, we need a lot of special technology on that. and probably what we call the KV caching, the key value caching. And the cache has to store somewhere. So that's the kind of the pyramid, the hierarchy of the whole memory storage systems.

24:14And we need all those evolution of the memory things. And SK will invest into that technology? Of course, that's our main business. and, wow, we're going to make it. And we could actually deliver some other business model even, not just at the memory producer. So we could actually memory servicers, like memory as a service. In the future, that is another area so we could actually focus on. Talk a little bit more about memory as a service. The basics of how that would work. Right now, it's a kind of imaginary thing. It's an idea. Yeah, it's just an idea. But I think that our whole AI trend, the direction goes there because the memory is a kind of real bottleneck and we have to solve it.

25:04And some of the specialists actually bring that certain type of solution to each customer and each application. So it's not just that one solution could actually cover all those problems. It's not going to happen. But it's an influencing market, and that influencing market has their own characteristic. That characteristic, and we have to develop a certain adjustment for the stack of the memories and how to do it, and we need some special software together. But anyhow, we could actually serve as a kind of servicers rather than just here is memory, and you just use it. But we just fixed all kinds of different memory systems.

25:51So once we made it, and we could actually deliver as a kind of service rather than just produce just commodity. It's an interesting look at the future. We are live on Bloomberg Television and Radio speaking to SK Group Chairman Che. In October, when you spoke to Bloomberg's Sherry An, you said, everyone asks me about AI bubble, AI bubble, AI bubble. And you said at the time, it's about the cost of AI. The cost of AI is too high. Yeah. Has that changed since October? And what is the trajectory of the cost of AI? Yeah, well, cost of AI as, well, you could actually say that token for a dollar. Token per dollar or dollar per token basis.

26:37Yeah. Anyhow, we have to lower down the token cost. But do you see it coming down? Yes. Actually, well, within three years, actually, token cost is about one-fifth over the one-tenth. So that's evolutions. And, well, there is a lot of players just contributed those kind of token cost is way down. So even my memory company make some solution for how we can actually lower down the token cost. That's our challenge. And our direction goes there. So that's a kind of ecosystem for the AI. And right now, of course, it's too high. But somehow our technology is down the road probably five years, ten years.

27:30And we actually digested all those problems. and it could actually be everybody's AI and everybody could actually use their own agent in the future. So that's the direction I see. But no AI bubble. AI bubble. And when you see that the AI bubble and this real world and the stock market, stock market always, I see that there's some overshooting and, well, it's too hot, too cold. So there might be that the world, there is a lot of bubble for the stock price itself. But that doesn't actually reflect the whole real world. But trend-wise, if it's a long run, then two years, three years, down the road, then you could actually reflect the whole real world.

28:20That's what I see. You can say that the AI bubble, but I see that the world's stock market. But this AI technology is real. So you use it. I use it. And, well, actually, the problem is, well, this AI thing is that right now is a little immature, imperfect. Yeah. It's the early stage. Of course, it's the early stage. It's the kind of, I said, it's only four years old, baby. But when you become a college boy and something else, it has it much more mature. so it could actually help us at a lot of productivity and we just rely on all those things and this is a kind of race and right now we see that there's some AI trial.

29:10Chairman Che, it's a historic day. Thank you. Literally making history with the ADRs but the focus on America, SK's relationship with America. What is your relationship like with the Trump administration and how are you working with them to bring more of SK Hynix to this country? Well, not only just SK Hynix, and we've been already, the SK already invested in more than$35 billion in the U.S. side. And not many people have noticed those things, but we do have bio business. We do have the battery business. And Hynix just announced that there were a new fab in the Indiana side. and also SK Telecom made a lot of investment in the AI startups.

29:59So we already invested in 35, but I see that my plan is a much bigger number. Bigger than 35 million. Yeah, much, much bigger than 35. So I'm planning to, and this is one milestone, and we access it to the U.S. capital market, and we have a lot of options. And also we had that responsibility to keeping that share price. And, well, there's one good thing is that we made it the right investment. And so we keep that our own value. China, it's an important market, a point driver of AI. Yeah, China AI is, well, we have to actually notice that and the China approach is way different than the U.S. side.

30:52How so?

30:55They have a lot of disadvantages on the AI side. But anyhow, they put it in a lot of other resources. The number one is the human force. Human capital. Yeah, human capital. And the number of people, number of engineers. So annually, well, they have STEM students from the major in STEM. And it's more than a million students. It's come out every year. So they're looking for the jobs. And mostly they apply to the tech area. When you say tech area, it's probably 50 % is AI side. So their AI, they're using that different strategy. So I don't see any kind of visible result yet, but there is some signs, and they're making that some cheaper way, and they try to create the world cheaper token.

31:59The token cost comparability, yes, that's kind of an important matter. And the U.S. focus on top niche market and the quality of tokens, but China is focused on other ways. So I don't know the result, but I see that they're using a different strategy. SK Group Chairman, Jay Taewon, thank you. Congratulations. Thank you. With the highest number of young STEM graduates per capita in the EU, Ireland has the people and skills your company needs to succeed here. IDA Ireland, the National Investment Development Agency, can help you find and nurture the people you need to internationalise and thrive.

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