SK Hynix warns chip downturn to worsen in Q1, posts record quarterly loss


FILE PHOTO: Employees walk past the logo of SK Hynix at its headquarters in Seongnam, South Korea. REUTERS/Kim Hong-Ji

SEOUL: South Korea's SK Hynix Inc cautioned that the chip industry downturn, the worst in over a decade, will deepen further in the next few months as it posted a record quarterly operating loss on Wednesday.

Market conditions will gradually improve later this year as chipmakers cut supply in response to the drop in global tech demand and clients buy chips again at low prices, said SK Hynix, the world's No.2 memory chipmaker after Samsung Electronics.

"The recent drop in memory prices is the largest since the fourth quarter of 2008 ... industry-wide inventory is probably at an all-time high," SK Hynix's finance chief, Woohyun Kim, said in an earnings call.

He expects inventory levels to peak during the first quarter before gradually declining as chipmakers reduce production, improving supply-and-demand conditions in the second half.

SK Hynix flagged lower chip prices in the current quarter.

Shares of the company closed up 3.3%, underpinned by hopes of a recovery later in 2023, versus the wider benchmark's 1% rise.

For the fourth quarter ended December, SK Hynix swung to a worse-than-expected 1.7 trillion won ($1.38 billion) operating loss, from 4.2 trillion won profit a year earlier. The quarterly loss is the biggest since SK Group acquired Hynix in 2012.

Analysts had expected a 1.3 trillion won operating loss, according to Refinitiv SmartEstimate.

'PRODUCTION ADJUSTMENTS NEEDED'

The global technology industry has been battling a sharp and sudden downturn in demand since late 2022, as companies cut spending on tech products and services while consumers spend less on discretionary goods amid surging inflation.

To offload piling inventory, chipmakers looked to sell chips at modest prices in the fourth quarter, leading to a depreciation in the asset value of NAND Flash chip inventory.

But selling has not been easy with clients opting to use their own inventory amid economic uncertainty, analysts said.

Data as of the fourth quarter shows it took 46.1 weeks for SK Hynix's products to be sold from time of production, said Nam Dae-jong, analyst at eBest Investment & Securities.

Although this is expected to drop to 39.9 weeks in the first quarter, "it's still too much... active production adjustments are needed", Nam said. It was below 10 weeks a year earlier.

SK Hynix said in October it plans to slash its 2023 investment by more than half versus 2022, after warning of an "unprecedented deterioration" in memory chip demand.

On its earnings call, SK Hynix said it will focus its resources on advanced chips to prepare for a market upturn in 2024. It had a free cash flow deficit of 4.23 trillion won as of end-2022.

In contrast, Samsung Electronics has said it has no plans to cut investment despite reporting a 97% plunge in its chip operating profit for the October-December period.

"Hynix doesn't have as much money as Samsung. Its free cash flow is at a big deficit, and ... borrowing has increased," said Eo Kyu-jin, analyst at DB Financial Investment. "It's a necessary choice to cut capex." - Reuters

Article type: free
User access status:
Subscribe now to our Premium Plan for an ad-free and unlimited reading experience!
   

Next In Business News

Oil slips on surprise US inventory build; Fed rate decision eyed
Bursa Malaysia inks collaboration with UMW, Maybank to roll out centralised sustainability platform
Philippine’s billionaire Frank Lao buys 35% stake in Malaysian coffee shop Zus
Kenanga IB wins seven awards at the Bursa Excellence Awards 2022
Fed's Powell faces political storm, policy minefield over SVB oversight
Bursa stays positive as attention shifts to the Fed
UOB Malaysia rolls out expanded sustainable solar financing programme
LEAP Market debutant Sancy rises 116% to 26c/share
Ringgit remains higher vs US$ in early session
New test platforms to boost KESM's automotive segment

Others Also Read