SK Hynix says chip industry woes “unprecedented”, to cut 2023 investment by 50%

SEOUL, Oct 26 (Reuters) – South Korean chipmaker SK Hynix Inc (000660.KS) said on Wednesday the memory chip market is facing an “unprecedented deterioration”, as its third-quarter profit tumbled 60% amid a surge in inflation, missing expectations.

“Supply will continue to exceed demand for the time being,” the world’s second-biggest memory chip maker said in a statement, pointing to a fall in notebook and smartphone shipments.

The company said it plans reduce its investment next year by more than 50% on-year.

The profit fall came as red-hot inflation hurt demand for electronic devices and the memory chips that go in them.

SK Hynix’s operating profit fell to 1.66 trillion won ($1.16 billion) in the July-September quarter, from 4.2 trillion won a year earlier. The result was below analysts’ expectations of a 1.87 trillion won profit, according to Refinitiv SmartEstimate.

Prices of DRAM chips, used in devices and servers, fell around 20% in the third quarter from the second, SK Hynix said. Prices of NAND Flash chips that serve the data storage market fell more than 20%.

The lacklustre results echo bigger rival Samsung Electronics’ (005930.KS) third-quarter earnings slump and U.S. peer Micron Technology Inc’s (MU.O) warnings of a sharp decline in PCs and smartphones sales.

Chipmakers had enjoyed a strong post-pandemic demand surge until early this year that created a shortage of certain chips and disrupted production of vehicles and various electronic devices.

But chip demand has turned sharply weaker in recent months, as soaring inflation, rising interest rates and gloomy economic outlook have led consumers and businesses to tighten their spending.

The global smartphone market contracted 9% on-year in July-September, marking the worst third-quarter since 2014, according to analysis provider Canalys.

DRAM chip prices are expected to fall further in the current quarter as memory chip companies have lost their bargaining power with customers who have stockpiled chips and now struggle to clear them due to weak demand, said Wi Min-bok, analyst at Daishin Securities.

With the memory chip glut seen lasting until the first half of next year, SK Hynix joins chipmakers that have begun curtailing supply and investment. Micron plans to cut investments by more than 30% next year; TSMC has also cut its 2022 investment plan.

SK Hynix said its 2022 investment is expected to be at the “upper range of 10-20 trillion won”.

Despite the current drop in demand for server memory chips, SK Hynix forecast more appetite in the longer term as hyperscale data centres continue their investment to meet growth in industries such as artificial intelligence (AI), big data and the metaverse.

Third-quarter revenue fell 7% on-year to 10.98 trillion won.

SK Hynix shares were flat in early morning trade, versus a 0.3% rise in the wider market (.KS11).

($1 = 1,426.6500 won)

Reporting by Joyce Lee & Heekyong Yang; Editing by Muralikumar Anantharaman and Richard Pullin

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