SK Hynix to cut DRAM production, investment as profit declines 89%

When the chips are down: trade tussle with Japan yet another reason for pessimism

Memory manufacturers just can't catch a break this year. As if the ongoing memory oversupply and US-China trade war weren't enough, now they have to contend with an escalating trade conflict between Japan and South Korea, which is disrupting the flow of key silicon etching ingredients.

South Korea is home to two of the world's largest memory suppliers, Samsung and SK Hynix, and the latter has just announced it will cut its DRAM production capacity from Q4 after reporting a second-quarter operating profit decline of 89 per cent year-on-year.

SK Hynix said it will also reduce investment in capital expenditure – a move widely anticipated by analysts as a way to deal with oversupply. Samsung and Micron are expected to do the same.

The company turned over ₩6,452bn ($5.7bn) in sales in Q2, down 38 per cent year-on-year, and its operating profit was decimated: just ₩638bn ($541.9m), as opposed to ₩5,574bn ($4.73bn) a year ago - way lower than analyst estimates.

Net profit shrunk by 88 per cent to ₩537bn ($455m). Operating margin for the quarter was 10 per cent and net margin was 8 per cent.

All this happened even though the number of unit shipments actually increased quarter-on-quarter.

In DRAM, the company said "purchase postponement from certain customers continued, due to intensified global trade tensions" but in mobile sales demand was higher and price decline was lower compared to other applications. SK Hynix also noted that data centre customer demand for DRAM remained weak due to conservative purchasing behavior.

As for NAND, the company said it managed to temporarily expand discrete sales to relieve inventory burden, but average selling price (ASP) erosion continued.

In April, SK Hynix was hopeful that its fortunes would improve after June – that doesn't seem to be the case. Back then, the company said it would reduce NAND wafer capacity by more than 10 per cent, and now this number has been upgraded to 15 per cent.

The Korean chip maker said its woes were primarily due to a sharp decline in DRAM and NAND prices – with DRAM in particular expected to fall more than 40 per cent this year – but it also blamed the trade dispute with Japan as a source of further uncertainty. In July, Japan restricted exports of some high-tech materials used in chip making to South Korea, ostensibly over a row about Japan's wartime conduct.

"We cannot rule out production disruption if Japanese export controls drag on," Jin-Seok Cha, head of SK Hynix's finance and procurement, said during an earnings call.

Just like with Texas Instruments earlier this week, the appearance of a plan to deal with the current issues of the silicon market seems to have inspired investor confidence, even as the results themselves are less than impressive: SK Hynix was trading 3 per cent higher on Thursday. ®

Broader topics

Other stories you might like

  • Semiconductor industry growth to slow in 2022, warns IDC
    Chip price hikes keeping sector healthy but new fabs could lead to 'overcapacity'

    The global economy may be in a tenuous situation right now, but the semiconductor industry is likely to walk away from 2022 with a "healthy" boost in revenues, according to analysts at IDC. But beware oversupply, the analyst firm warns.

    Semiconductor companies across the world are expected to grow collective revenues by 13.7 percent year-on-year to $661 billion, IDC said in research published Wednesday. Global semiconductor revenue last year was $582 billion.

    "Overall, the semiconductor industry remains on track to deliver another healthy year of growth as the super cycle that began in 2020 continues this year," said Mario Morales, IDC group vice president of semiconductors.

    Continue reading
  • DRAM prices to drop 3-8% due to Ukraine war, inflation
    Wait, we’ll explain

    As the world continues to grapple with unrelenting inflation for many products and services, the trend of rising prices is expected to have the opposite impact on memory chips for PCs, servers, smartphones, graphics processors, and other devices.

    Taiwanese research firm TrendForce said Monday that DRAM pricing for commercial buyers is forecast to drop around three to eight percent across those markets in the third quarter compared to the previous three months. Even prices for DDR5 modules in the PC market could drop as much as five percent from July to September.

    This could result in DRAM buyers, such as system vendors and distributors, reducing prices for end users if they hope to stimulate demand in markets like PC and smartphones where sales have waned. We suppose they could try to profit on the decreased memory prices, but with many people tightening their budgets, we hope this won't be the case.

    Continue reading
  • Big Tech begs Congress to pass $52bn chip subsidies bill
    This silicon business ain't cheap, you know, say execs at Alphabet, Amazon, Microsoft, Nvidia etc

    Big Tech in America has had enough of Congress' inability to pass pending legislation that includes tens of billions of dollars in subsidies to boost semiconductor manufacturing and R&D in the country.

    In a letter [PDF] sent to Senate and House leaders Wednesday, the CEOs of Alphabet, Amazon, Dell, IBM, Microsoft, Salesforce, VMware, and dozens of other tech and tech-adjacent companies urged the two chambers of Congress to reach consensus on a long-stalled bill they believe will make the US more competitive against China and other countries.

    "The rest of the world is not waiting for the US to act. Our global competitors are investing in their industry, their workers, and their economies, and it is imperative that Congress act to enhance US competitiveness," said the letter.

    Continue reading

Biting the hand that feeds IT © 1998–2022