SK hynix to halve capex ‘23 with Q3 income off over 60%, worries Wuxi fab fate

(Updated with conference call comments)

South Korean chipmaker SK hynix Inc. will have to axe capital investment by more than half next year as it enters a bust cycle in memory chips, underscored by the plunge of more than 60 percent in operating income in the third quarter from three months and year earlier.

SK hynix, the world’s second-largest memory maker after Samsung Electronics, on Wednesday disclosed income from July-September operation stopped at 1.66 trillion won ($1.16 billion), down 60.5 percent on quarter and 60.3 percent on year.

Revenue fell 20.5 percent on quarter and 7 percent on year to 10.98 trillion won. Net income shrank 61.7 percent on quarter and 66.7 percent on year to 1.1 trillion won.

The income fell sharply below market consensus of 1.98 trillion won.

Despite the disappointing results, shares rose 0.4 percent and closed at 93,900 won on Wednesday.

Facing “unprecedented downturn in chip cycle with supply capacity well exceeding demand for some time,” the chipmaker would more than halve capex next year from this year’s spending of close to 11 trillion won.

“Capex cut (next year) would be as big as during the 2008-2009 financial crisis” said Noh Jong-won, chief marketing officer at SK hynix said in a conference call.

Investment related to wafer capacity would have to be kept to the minimum to continue with output against stockpile of inventories, he added.

There may be a delay in migration to next-gen technology, but the tallest-yet 286-layer 4D NAND flash would be mass-produced from the middle of next year as planned, unaffected by spending streamlining, he said.

Instead, the No. 2 mass-market DRAM and NAND flash maker will cut back low-profitable products to normalize supply and demand balance in the market.

Operating margin rate in the third quarter stopped at 15 percent and net profit rate 10 percent.

Income declined despite its efforts to improved productivity from operation of 10 nano Gen 4 DRAM and 176-layer 4D NAND due to faster fall in chip prices on weakened demand from soaring inflation and interest rates.

Still SK hynix projected demand for memory chips in datacenter servers will grow in the mid- to long-term perspective, as “hyperscale data centers are continuing their investment to meet the increasing scale of industries such as artificial intelligence (AI), big data and metaverse.”

The chipmaker maintains lead in DRAM technologies such as high bandwidth products including high bandwidth memory 3 (HBM3) and DDR5/LPDDR5 for leap when chip cycle rebounds.

Although it is hard to estimate business conditions next year, the chipmaker predicted demand growth of around 10 percent in DRAM and around 25 percent in NAND, according to Noh.

The U.S.-China hegemonic contest poses another risk for the chipmaker.

“It won’t be easy to bring in extreme ultraviolet lithography (EUV) equipment for the Wuxi DRAM factory in China,” Noh admitted, and without the equipment necessary for processing in nanometers, production cost would inevitably grow.

The U.S. government has granted a grace period of one year in the ban of chip equipment with U.S. interests to China for Samsung Electronics and SK hynix.

Noh noted that if the one year grant is no longer extended, there may be difficulties in upgrades and make the fab operation difficult.

Under the worst-case scenario, the company may have to sell the fab and equipment or bring them to Korea, he said. The action would mean shuttering the operation in Wuxi.

[ㄏ Maeil Business Newspaper & mk.co.kr, All rights reserved]