UPDATE 2-SK Hynix expects full chip recovery after Q1 earnings surprise on AI boom

(Recasts, paragraph 1, adds company comment in paragraphs 4-5, HBM background in paragraphs 7-9)

By Joyce Lee and Heekyong Yang

SEOUL, April 25 (Reuters) - South Korea's SK Hynix Inc said it expected a full recovery in memory chips on AI demand, after posting its highest profit in nearly two years on massive sales of its advanced DRAM chips such as high bandwidth memory (HBM) used in generative AI chipsets.

The world's second-biggest memory chipmaker and Nvidia supplier reported a 2.89 trillion won ($2.1 billion) operating profit for the January-March quarter versus a loss of 3.4 trillion won a year earlier.

It beat expectations for a 1.88 trillion won operating profit LSEG SmartEstimate, which is weighted toward analysts who are more consistently accurate.

"The memory market is entering into full recovery cycle with ongoing strength of AI demand," SK Hynix said.

"Demand improvement from conventional applications is also expected from the second half of 2024", meaning demand for chips used in smartphones, personal computers and servers.

Thursday's result marks its second-highest profit for the January-March quarter ever and a quick turnaround from heavy losses incurred over a year to the third quarter of 2023 as the global memory chip sector went through its worst downturn in decades, hit by a slump in demand for tech devices post-COVID.

Among memory chipmakers, SK Hynix is the biggest beneficiary of the explosive increase in AI adoption, as it became the main supplier of HBM chips for Nvidia's graphic processing units that train AI systems.

SK Hynix has been the sole supplier of HBM3 to Nvidia, which has 80% of the market for AI chips, and began mass production of the latest version of HBM chips, called HBM3E, with shipments going to the U.S. firm.

Its shares have climbed 96% in the past 12 months, outperforming peers, on bets that its lead in HBM chip development would better bolster SK Hynix's profitability.

First-quarter revenue rose 114% on-year to 12.4 trillion won.

($1 = 1,374.6200 won) (Reporting by Joyce Lee and Heekyong Yang; Editing by Himani Sarkar, Kim Coghill and Sonali Paul)