SK Hynix says industry woes ‘unprecedented’, to cut back on investment

The South Korean chipmaker’s third-quarter profit falls 60 percent amid rising inflation.

South Korean chipmaker SK Hynix says the memory chip market is facing an “unprecedented deterioration” as its third-quarter profit fell 60 percent amid rising inflation.

“Supply will continue to outstrip demand for the time being,” the world’s second-largest memory chipmaker said in a statement on Wednesday, pointing to a drop in shipments of laptops and smartphones.

The company said it plans to cut its investment next year by more than 50 percent year on year.

The profit slump comes as red-hot inflation has hurt demand for electronic devices and the memory chips found 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 ($2.93 billion) a year earlier. The result fell short of analyst expectations for a profit of $1.87 trillion ($1.31 billion), according to Refinitiv SmartEstimate.

Prices for DRAM chips, used in devices and servers, fell about 20 percent in the third quarter from the second, SK Hynix said. Prices for NAND Flash chips serving the data storage market fell more than 20 percent.

The lackluster results echo falling third-quarter profit at its biggest rival, Samsung Electronics, and warnings from US peer Micron Technology Inc. of a sharp drop in sales of PCs and smartphones.

Chipmakers had enjoyed a strong post-pandemic surge in demand until earlier this year, leading to shortages of certain chips and disrupting production of vehicles and various electronic devices.

But chip demand has weakened considerably in recent months as soaring inflation, rising interest rates and a bleak economic outlook prompted consumers and businesses to tighten their spending.

The global smartphone market shrank 9 percent year-on-year between July and September, marking the worst third quarter since 2014, according to analytics 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 hoarded chips and are now struggling to liquidate them due to weak demand, it said. Wi Min-bok, analyst at Daishin Securities.

With the glut of memory chips expected to last into the first half of next year, SK Hynix joins chipmakers that have started to cut supply and investment. Micron plans to cut investments by more than 30 percent next year. TSMC has also cut its investment plan for 2022.

SK Hynix said its investment for 2022 is expected to be in the “upper 10 to 20 trillion won range” ($7 to 14 billion).

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

Third-quarter revenue fell 7 percent year on year to 10.98 trillion won (US$7.6 billion).

SK Hynix shares were flat in morning trading, versus a 0.3 percent gain in the broader market.