Industry trade

SK Hynix says chip industry woes are ‘unprecedented’, to cut investment

  • Q3 earnings down 60%, miss estimates
  • Co says memory chip prices are down 20%
  • Inflation and gloomy economic outlook weigh on demand

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

“Supply will continue to outstrip demand for now,” the world’s second-largest memory chip maker said in a statement, pointing to lower shipments of laptops and smartphones.

The company said it plans to cut its investments next year by more than 50% year-on-year.

The fall in profits came as runaway inflation hurt demand for electronic devices and the memory chips that make them up.

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 profit of 1.87 trillion won, according to Refinitiv SmartEstimate.

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

The lackluster results echo biggest rival Samsung Electronics (005930.KS)’s third-quarter profit slump and warnings from U.S. peer Micron Technology Inc (MU.O) of a sharp drop in PC and laptop sales. smartphones.

CHIPMAKERS TACKLE ON IMPACT

Chipmakers experienced a surge in post-pandemic demand until early this year, which created a shortage of certain chips and disrupted the production of vehicles and various electronic devices.

But demand for chips has weakened significantly in recent months as soaring inflation, rising interest rates and a bleak economic outlook have led consumers and businesses to cut spending.

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

DRAM chip prices are expected to decline further in the current quarter as memory chip companies have lost bargaining power with customers who stockpiled chips and are now struggling to dispose of them due to weak market performance. demand, said Wi Min-bok, an analyst at Daishin Securities.

With the memory chip glut expected to last until the first half of next year, SK Hynix joins chipmakers who have begun to cut supply and investment. Micron plans to reduce capital expenditure by more than 30% next year; TSMC also reduced its 2022 investment plan.

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

Despite the current decline in demand for server memory chips, SK Hynix foresees more appetite in the longer term as hyperscale data centers continue to invest to meet growth in areas such as artificial intelligence ( IA), big data and the metaverse.

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

Shares of SK Hynix were flat early in the morning against a 0.3% rise in the broader market (.KS11).

($1 = 1,426.6500 won)

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

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