- Reduction in investments comparable to the financial crisis of 2008-09
- Q3 profit plunges 60%, misses estimates
- Inflation and gloomy economic outlook weigh on demand
SEOUL, Oct 26 (Reuters) – South Korea’s SK Hynix Inc (000660.KS) warned on Wednesday of an “unprecedented deterioration” in demand for memory chips, heightening fears of a global recession, and said it would cut investments after quarterly profits fell 60%. .
The world’s second-largest memory chipmaker, whose customers include Apple Inc (AAPL.O), said its investment in 2023 will be cut by more than 50% – an echo of cuts to the memory chip industry during the financial crisis of 2008-09 which painted a striking portrait of the scale of a global slowdown in technological demand.
Chipmakers had seen a surge in post-pandemic demand until earlier this year. But demand has weakened sharply in recent months as soaring inflation, rising interest rates and a bleak economic outlook have led consumers and businesses to cut spending.
“We expect the market to stabilize to some degree by the second half of next year, but we’re not ruling out the possibility of a longer downturn,” Chief Marketing Officer Kevin Noh told analysts. at SK Hynix.
Investors looked beyond the gloomy outlook to welcome the aggressive cut in investment, sending shares of SK Hynix up 1.7% in a bet that the scale of the action would help control the oversupply of chips and support chip prices.
SK Hynix’s dire projections add to a flurry of warnings from US tech giants this week about faltering growth prospects. Microsoft Corp on Tuesday forecast quarterly revenue below Wall Street targets across all of its business units, including its cloud business and PC unit.
SK Hynix said its 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 profit of 1.87 trillion won, according to Refinitiv SmartEstimate.
“Supply will continue to outstrip demand at this time,” SK Hynix said in a statement, pointing to lower shipments of laptops and smartphones.
Memory chip prices fell 20% as demand fell across all applications in the third quarter, SK Hynix said, citing lower shipments of PCs and smartphones as data centers prioritized storage. using existing chip inventory.
NO RETURN UNTIL THE END OF 2023?
SK Hynix said its investment in 2022 is expected to be in the “upper range of 10 trillion to 20 trillion won ($7 billion to $14 billion)”, which means investments in 2023 could fall below 10. 000 billion won.
“The reduction in investment was bigger than I expected,” said Daishin Securities analyst Wi Minbok.
“Even if SK Hynix cuts investment, it will take around six months for actual production to be affected…We don’t expect market conditions to recover until Q3 2023.”
Other chipmakers have also started to cut supply and investment. US-based Micron Technology (MU.O) plans to cut investment by more than 30% next year, while Taiwanese giant TSMC has also cut its 2022 investment plan.
The spending cuts come as the global smartphone market, a key revenue source for the chip industry, contracted 9% year on year in July-September, marking the worst third quarter since 2014, according to the Canalys analysis supplier.
SK Hynix also warned of uncertainties about its chip factories in China due to US restrictions on the export of advanced chip equipment to China aimed at slowing Beijing’s technological advances.
The company received a one-year waiver over restrictions on its chip factories in China, but said it would be difficult to operate its Wuxi factory in the country if the waiver was not extended, and may need to consider selling the plant or bringing in equipment. to South Korea.
($1 = 1,426.6500 won)
Reporting by Joyce Lee and Heekyong Yang; Editing by Muralikumar Anantharaman, Richard Pullin and Kenneth Maxwell
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