South Korean chipmaker SK Hynix Inc. said it will cut its capital expenditure for next year by at least half after reporting a 60% decline in third-quarter profit as memory chip demand plunged.
Hynix’s dramatic cut affirms pessimism about electronics demand in the face of a potential recession as well as uncertainty over Washington’s campaign to smother China’s tech industry. The US curbs on access to advanced chips could curtail production at Hynix and other chipmakers’ factories in China, adding to downbeat forecasts that have come from other chip suppliers like Micron Technology Inc. and Texas Instruments Inc.
Operating profit declined to 1.7 trillion won ($1.7 billion; US$1.2 billion) in the three months ended September, Hynix said on Wednesday, missing analyst estimates of a 2.5 trillion won profit. Revenue was 11 trillion won, missing the estimated 12.2 trillion won.
“SK Hynix diagnosed that the semiconductor memory industry is facing an unprecedented deterioration in market conditions,” the company wrote in its earnings announcement. “Shipments of PCs and smartphone manufacturers, which are major buyers of memory chips, have decreased.”
Prices of DRAM and NAND storage slumped at least 20% on a quarterly basis, Hynix said. The company plans to cut production gradually, starting with less profitable products, though it still expects memory supply will exceed demand for the near term. Fellow memory makers Micron and Kioxia Holdings Corp. recently slashed their output plans in an effort to stabilize the market.
Hynix shares, which declined 29% this year, rose as much as 2% in Seoul on Wednesday, signaling a positive reaction to Hynix’s move to shore up oversupply.
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“The market might be taking the supply chain discipline comments well -- capex cut and also lowering production of low-margin products,” said Christina Woon, investment director for Asia equities at abrdn plc. “It isn’t a quick fix, but these would be positive steps for addressing supply and demand dynamics.”
The Korean chipmaker also warned that its DRAM production plant in Wuxi, near Shanghai, may be forced to close in an extreme scenario where it’s unable to import the equipment it needs to sustain and expand production. It’s won a one-year reprieve from Washington sanctions on chipmaking within Chinese borders, but the company is now studying contingencies for the longer term.
“The US export control will have direct repercussions to the chip industry from 2024,” said Greg Roh, head of technology research at HMC Investment & Securities. “There’s limited impact so far, but it could affect server demand in the mid-term and any plans to expand capacity in China could be disrupted within a year.”
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Global chip demand cooled dramatically in recent months as soaring inflation and interest rate hikes forced consumers and enterprise clients to cut spending. US supplier Texas Instruments dropped as much as 6% in the hours before Hynix’s release after reporting its own underwhelming projections. TI has the largest customer list in the semiconductor industry, making it a bellwether for the overall sector.
Inventories at Hynix almost doubled to 11.9 trillion won at the end of the second quarter this year from 6.2 trillion won a year earlier. The increase was partly due to its acquisition of Intel Corp.’s NAND business, which became Hynix’s US subsidiary in December last year.
Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, also cut its capital spending this year by 10% at its last earnings announcement. Hynix’s larger rival Samsung Electronics Co. reported its first profit drop since 2019 this month and has signaled it doesn’t expect a demand recovery throughout next year. Samsung reports its full earnings on Thursday.
