SK hynix warns chip downturn to worsen in H1, posts record quarterly loss

South Korean chipmaker SK Hynix Inc said the industry downturn will worsen in the first half of 2023, as it posted a record quarterly operating loss on Wednesday.

The world’s No.2 memory chipmaker, however, said it expects market conditions to gradually improve later in the year as chipmakers reduce supply in response to a deepening downturn in global tech demand and clients buy chips again at low prices.

“Industry experts do not expect an increase in supply of memory chips as market players are planning to reduce investments and production, which will lead inventories to peak within the first half,” SK Hynix said in a statement.

For the quarter ended December, SK Hynix swung to a 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.

This compares with expectations for a 1.3 trillion won operating loss, according to estimates from 21 analysts compiled by Refinitiv SmartEstimate and weighted toward analysts that are more consistently accurate.

Revenue fell 38% year-on-year to 7.7 trillion won.

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

Analysts expects SK Hynix’s losses to deepen in the current quarter as chip prices fall further and shipments contract.

To offload piling inventory, SK Hynix, like other chipmakers, looked to sell chips at modest prices during the fourth quarter, hitting earnings and leading to depreciation in asset value of its NAND Flash chip inventory, analysts said.

But with clients wary of buying due to economic uncertainty and opting to use their own inventory instead, data as of the fourth quarter shows it took 46.1 weeks for SK Hynix’s products to be sold from time of production, according to Nam Dae-jong, analyst at eBest Investment & Securities.

Although this is expected to be shortened to 39.9 weeks in the first quarter, “it’s still too much… Active production adjustments are needed”, Nam said.

On Tuesday, the world’s No.1 memory chipmaker Samsung Electronics reported a 69% plunge in its operating profit, although it retained a profit for its chip business during the fourth quarter.

SK Hynix said in October it plans to reduce its 2023 investment by more than 50% versus 2022, after warning of an “unprecedented deterioration” in memory chip demand. Reuters