Categories: Business

In ‘unprecedented’ world chip hunch, SK Hynix to halve funding as recession looms By Reuters

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© Reuters. FILE PHOTO: Reminiscence chips by South Korean semiconductor provider SK Hynix are seen on a circuit board of a pc on this illustration image taken February 25, 2022. REUTERS/Florence Lo/Illustration

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By Joyce Lee and Heekyong Yang

SEOUL (Reuters) -South Korea’s SK Hynix Inc warned on Wednesday of an “unprecedented deterioration” in reminiscence chip demand, deepening fears of world recession, and mentioned it will slash funding after quarterly revenue tumbled 60%.

The world’s second-largest reminiscence chipmaker, whose purchasers embrace Apple Inc (NASDAQ:), mentioned its funding in 2023 will probably be lower by greater than 50% – an echo of cuts the reminiscence chip business endured within the 2008-09 monetary disaster that gives a stark portrait of the depth of a worldwide slowdown in tech demand.

Chipmakers had loved a robust post-pandemic demand surge till early this 12 months. However demand has turned sharply weaker in current months as hovering inflation, rising rates of interest and gloomy financial outlook have led customers and companies to tighten spending.

“We hope that the market will stabilise to some extent by second half of subsequent 12 months, however we’re not ruling out the potential of an extended downturn,” Kevin Noh, Chief Advertising Officer at SK Hynix, advised analysts.

Traders appeared past the awful outlook to welcome the aggressive funding lower, sending SK Hynix shares 1.7% greater in a wager the size of the motion would assist management chip oversupply and prop up chip costs.

SK Hynix’s dire projections add to a flurry of warnings from U.S. tech giants this week of faltering development prospects. Microsoft Corp (NASDAQ:) on Tuesday projected quarterly income beneath Wall Road targets throughout its enterprise items, together with its cloud enterprise and PC unit.

SK Hynix mentioned its working revenue fell to 1.66 trillion gained ($1.16 billion) within the July-September quarter, from 4.2 trillion gained a 12 months earlier. The outcome was beneath analysts’ expectations of a 1.87 trillion gained revenue, in line with Refinitiv SmartEstimate.

“Provide will proceed to exceed demand in the interim,” SK Hynix mentioned in a press release, pointing to a fall in pocket book and smartphone shipments.

Reminiscence chip costs plunged by 20% as demand fell throughout all purposes within the third quarter, SK Hynix mentioned, citing dropping PC and smartphone shipments whereas knowledge centres prioritised utilizing up current chip stock.

NO TURNAROUND TILL LATE 2023?

SK Hynix mentioned its 2022 funding is anticipated to be on the “higher vary of 10-20 trillion gained ($7-14 billion)”, that means 2023 investments may fall beneath 10 trillion gained.

“The capex lower was larger than I anticipated,” mentioned Wi Minbok, analyst at Daishin Securities.

“Even when SK Hynix reduces investments, it is going to take round six months till precise output is affected … We do not anticipate market situations to show round earlier than the third quarter of 2023.”

Different chipmakers have additionally begun curbing provide and funding. U.S. agency Micron Expertise (NASDAQ:) plans to chop investments by greater than 30% subsequent 12 months, whereas Taiwanese large TSMC has additionally lower its 2022 funding plan.

The spending cuts come as the worldwide smartphone market, a key income supply for the chip business, contracted 9% on-year in July-September, marking the worst third-quarter since 2014, in line with evaluation supplier Canalys.

SK Hynix additionally warned of uncertainties involving its chip vegetation in China on account of U.S. export restrictions on superior chip gear to China geared toward slowing Beijing’s technological advances.

The corporate obtained a one-year waiver on the restrictions for its chip vegetation in China, however mentioned it will be troublesome to function its Wuxi plant within the nation if the waiver was not prolonged, and will have to think about promoting the plant or bringing gear to South Korea.

($1 = 1,426.6500 gained)

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