SK Hynix to halve 2023 capital spending after profit plunge

SOUTH Korean chipmaker SK Hynix said it will cut its capital expenditure for next year by half after reporting a 60 per cent decline in third-quarter profit as memory chip demand plunged.

Hynix’s dramatic cut affirms growing pessimism about the outlook for electronics demand in the face of a potential recession as well as enormous uncertainty over the extent of fallout from Washington’s campaign to smother China’s tech industry. It adds to the downbeat outlooks that have come from companies such as Micron Technology and Texas Instruments (TI).

Operating profit declined to 1.7 trillion won (S$1.7 billion) in the three months ended September, the Apple supplier said on Wednesday (Oct 26), 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.”

Global chipmakers and PC suppliers have warned that the semiconductor market is in a severe downturn that’s likely to continue at least until the first half of next year. Chip demand cooled dramatically in recent months as soaring inflation and interest rate hikes forced consumers and enterprise clients to cut spending. Hynix shares have declined 29 per cent this year.

US supplier Texas Instruments dropped as much as 6 per cent 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.

“Hynix is expected to report a profit loss next year due to falling demand and prices,” Nam Dae-jong, an analyst at eBEST Investment & Securities, said ahead of the company’s report. Nam estimates a roughly 20 per cent fall in prices for both Dram and Nand memory over the past quarter relative to the previous one. “The price decline will be bigger than expectations and the cost burden will increase on lower fab utilisation rates.”

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’s Nand business, which became Hynix’s US subsidiary in December last year.

Memory makers Micron and Kioxia Holdings recently slashed their output plans in response to dwindling chip orders. Taiwan Semiconductor Manufacturing, the world’s largest contract chipmaker, also cut its capital spending this year by 10 per cent at its last earnings announcement. Hynix’s larger rival Samsung Electronics reported its first profit drop since 2019 this month and has also signalled it doesn’t expect a demand recovery throughout next year.

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Samsung, SK Hynix to be spared brunt of China chip crackdown by US

In addition to the broader market downturn, fresh US export curbs on China’s semiconductor industry increase uncertainty for Hynix’s business outlook. The Korean chipmaker has won approval from Washington to keep operations going in China for a year - where it has a Dram production fab in Wuxi and Nand facilities in Dalian - but restrictions on adopting advanced manufacturing in the country may limit the Korean firm’s ability to expand. BLOOMBERG