SK Hynix warns chip downturn to worsen in Q1, posts record quarterly loss
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By Joyce Lee and Heekyong Yang
SEOUL (Reuters) – South Korea’s SK Hynix Inc warned the chip industry’s downturn, the worst in over a decade, will deepen in the coming months as the company posted a record quarterly operating loss on Wednesday.
Market conditions will gradually improve later this year as chipmakers cut supply in response to falling global technology demand and customers buy chips at low prices again, said SK Hynix, the world’s second-biggest maker of memory chips after Samsung Electronics.
“The recent drop in memory prices is the largest since the fourth quarter of 2008…industry inventories are likely at an all-time high,” Woohyun Kim, chief financial officer of SK Hynix, said on a conference call.
He expects inventories to peak in the first quarter before gradually declining as chipmakers scale back production and improving supply and demand conditions in the second half.
SK Hynix reported lower chip prices in the current quarter.
Shares of the company ended up 3.3%, buoyed by hopes of a recovery later in 2023, versus the broader benchmark’s 1% rise.
For the fourth quarter ended December, SK Hynix reported a worse-than-expected operating loss of 1.7 trillion won ($1.38 billion) versus a 4.2 trillion won profit a year earlier. The quarterly loss is the largest since SK Group acquired Hynix in 2012.
Analysts had expected an operating loss of 1.3 trillion won, according to Refinitiv SmartEstimate.
“PRODUCTION ADJUSTMENTS REQUIRED”
The global tech industry has been grappling with a sharp and sudden fall in demand since late 2022 as companies cut spending on tech products and services, while consumers are spending less on consumer goods amid rising inflation.
To shed piling-up inventories, chipmakers attempted to sell chips at moderate prices in the fourth quarter, leading to a depreciation in the NAND flash chip inventory inventory value.
The sale wasn’t easy, however, as customers opted to use their own inventory amid economic uncertainty, analysts said.
Fourth-quarter data shows it took 46.1 weeks for SK Hynix’s products to be sold from the start of production, said Nam Dae-jong, an analyst at eBest Investment & Securities.
While that’s expected to drop to 39.9 weeks in the first quarter, “it’s still overkill…active production adjustments are needed,” Nam said. A year earlier it was less than 10 weeks.
SK Hynix said in October that it plans to cut its 2023 investment by more than half from 2022, after warning of an “unprecedented deterioration” in demand for memory chips.
On its conference 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 at the end of 2022.
In contrast, Samsung Electronics has said it has no plans to cut capital expenditures, despite reporting a 97% plunge in chip operating profit for the October-December period.
“Hynix doesn’t have as much money as Samsung. Its free cash flow is in a large deficit and…borrowing has increased,” said Eo Kyu-jin, an analyst at DB Financial Investment. “It is a necessary decision to reduce investments.”
($1 = 1,232.4700 won)
(Reporting by Joyce Lee and Heekyong Yang; Editing by Lincoln Feast and Himani Sarkar)
