© Stocksak. FILE PHOTO – This illustration picture, taken February 25, 2022, shows memory chips made by South Korean semiconductor supplier SK Hynix on a circuitboard of a computer. REUTERS/Florence Lo/Illustration
Joyce Lee and Heekyong Ya
SEOUL (Stocksak). SK Hynix Inc, a South Korean company, warned Wednesday of an “unprecedented deterioration in memory chip demand”, deepening fears about global recession. It also said it would slash investment following a 60% drop in quarterly profits.
The world’s 2nd-largest memory chipmaker, which has clients including Apple Inc (NASDAQ):, announced that its investment in 2023 would be cut by more then 50%. This is an echo of the 2008-09 financial crisis cuts that the memory chip sector endured. It paints a stark picture of the depth of a global slowdown of tech demand.
Up until this year, chipmakers enjoyed a strong post-pandemic surge in demand. However, demand has declined sharply in recent months due to a rising inflation rate, rising interest rates, and a gloomy economic outlook.
“We are hopeful that the market will stabilize to an extent by the second-half of next year, however, we are not ruling out a longer downturn,” Kevin Noh from SK Hynix, Chief Marketing Officer, stated to analysts.
Investors saw beyond the grim outlook and welcomed the aggressive investment cut. SK Hynix shares rose 1.7% in response to a bet that the scale of the action would control chip oversupply, and support chip prices.
SK Hynix’s dire forecasts add to a flurry U.S. tech giants’ warnings this week about a slowing economy. Microsoft Corp (NASDAQ: Tuesday, February 12, 2017) The company’s quarterly revenue projections were below Wall Street targets for all its business units, which includes its cloud business and its PC business.
SK Hynix reported that its operating profit dropped to 1.66 trillion won ($1.16 million) in the July-September quarter from 4.2 trillion won a previous year. According to Refinitiv SmartEstimate, the result was below analysts’ expectations for a 1.87 trillion won profit.
“Supply is going to continue to exceed demand for now,” SK Hynix stated in a statement. It pointed out a drop in smartphone and notebook shipments.
According to SK Hynix: Memory chip prices plunged 20% as demand fell across all applications during the third quarter. This was due to a drop in smartphone shipments and PC shipments. Data centres prioritised using up existing inventory.
UNTIL 2023, NO TURNAROUND
SK Hynix stated that its 2022 investment will be in the “upper range” of 10-20 trillion won ($7-14 Billion). This means that 2023 investments could fall below 10 billion won.
Wi Minbok, an analyst at Daishin Securities, said that “the capex cut” was more than she expected.
“Even if SK Hynix decreases investments, it’ll take approximately six months until actual output becomes affected… We don’t anticipate market conditions turning around before the 3rd quarter of 2023.”
Other chipmakers are also beginning to curtail supply and investment. Micron Technology (NASDAQ) in the United States plans to reduce investments by more than 30 percent next year. TSMC, the Taiwanese giant, has also reduced its 2022 investment plan.
According to Canalys, the spending cuts came as the global smartphone industry, a key revenue source, fell 9% in July-September. It was the worst third-quarter since 2014.
SK Hynix also warned about uncertainties involving its China chip plants due to U.S. export restrictions. These restrictions were imposed in order to slow down Beijing’s technological advancements.
The company was granted a one year waiver from restrictions on its chip plants in China. However, the company stated that it would be difficult to run its Wuxi plant in China if the waiver was not extended. They may also have to consider selling the plant, or bringing equipment to South Korea.
($1 = 1,426.6500 won)