SK Hynix says industry woes ‘unprecedented’, to cut investment | Business and economy

The South Korean chipmaker’s third-quarter profits fall 60% amid soaring inflation.

South Korean chipmaker SK Hynix says the memory chip market is facing “unprecedented deterioration” as its third-quarter profits fell 60% amid soaring inflation.

“Supply will continue to outstrip demand at this time,” the world’s second-largest memory chip maker said in a statement on Wednesday, pointing to lower shipments of laptops and smartphones.

The company said it plans to cut its investments next year by more than 50% year-on-year.

The fall in profits comes as runaway inflation has hurt demand for electronic devices and the memory chips that make them up.

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 was below analysts’ expectations of 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% in the third quarter from the second, SK Hynix said. Prices for NAND Flash chips that serve the data storage market have fallen by more than 20%.

The lackluster results echo the slump in profits of biggest rival Samsung Electronics in the third quarter and warnings from its U.S. counterpart Micron Technology Inc of a sharp decline in PC and smartphone sales.

Chipmakers had seen a surge in post-pandemic demand until early this year, which created a shortage of certain chips and disrupted the production of vehicles and various electronic devices.

But demand for chips has weakened significantly in recent months as soaring inflation, rising interest rates and a bleak economic outlook have led consumers and businesses to tighten spending.

The global smartphone market contracted 9% year on year in July-September, marking the worst third quarter since 2014, according to analytics provider Canalys.

DRAM chip prices are expected to decline further in the current quarter as memory chip companies have lost bargaining power with customers who stockpiled chips and are now struggling to dispose of them due to weak market performance. demand, said Wi Min-bok, an analyst at Daishin Securities.

With the memory chip glut expected to last until the first half of next year, SK Hynix joins chipmakers who have begun to cut supply and investment. Micron plans to reduce its capital expenditure by more than 30% next year. TSMC also reduced its 2022 investment plan.

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

Despite the current drop in demand for server memory chips, SK Hynix foresees more appetite in the longer term as large-scale data centers continue to invest to meet growth in areas such as intelligence. artificial intelligence (AI), big data and the metaverse.

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

Shares of SK Hynix were flat in early morning trading, against a 0.3% rise in the broader market

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