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SK hynix reviews investments as chip market slows

When the chips are down: Memory device maker the latest to evaluate direction

SK hynix is considering a cut in capital expenditure by as much as 25 percent, another sign that recent high demand for semiconductors is tailing off due to inflation amid growing concerns of oversupply.

The memory chipmaker is said to be mulling a reduction in spending to around $12.2 billion for 2023, according to newswire Bloomberg, which cites unidentified "people familiar with the matter."

SK hynix is not the only semiconductor company that is eyeing the economic situation with trepidation. Earlier this month, rival Micron warned in its record Q3 fiscal 2022 results that it expects to see a 13 percent drop in revenue for its next quarter due to falling demand for memory in the PC and smartphone markets.

Micron blamed the bearish prediction on market weakness, saying it was planning to take action to moderate its supply growth in fiscal 2023.

Like most things, this is more nuanced than it bay seem. Micron said that while its customers in the PC and smartphone markets intend to make downward adjustments to their inventories in the second half of this year, the demand from the enterprise and cloud server sectors continues to be healthy, and that the long-term trend for memory and storage is upwards.

Despite the falling demand, SK hynix reportedly intends to maintain existing plans that include a spend around ₩21 trillion ($15 billion) this year building up its DRAM and NAND capacity, with a rethink of what happens next year.

Taiwanese chip fab giant TSMC has likewise just reported record profits for its Q2 that ended on June 30, but also signaled that it is making preparations for a market correction.

The company's CEO, CC Wei, said that his expectation is for the excess inventory in the semiconductor supply chain to take a few quarters to rebalance to a healthier level, and that the current semiconductor cycle will be more like a typical cycle, "with a few quarters of inventory adjustment, likely through first half 2023."

TSMC similarly adjusted its capital expenditure plans from the April 2021 guidance of $100 billion over three years to $40 billion for this year. At the start of this year, the chipmaker said that it planned to hike capital spending by a nearly third for 2022, anticipating that demand was going to continue. TSMC would not be drawn on its updated spending projections beyond 2022.

Last month, research outfit Omdia joined other analysts in warning that the semiconductor market appears to be flattening out after a period of record revenues, with a slowdown due to a number of factors such as OEMs stockpiling components in response to earlier shortages, and global economic effects like high inflation. ®

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