SK hynix cuts capex after bad quarter, could unload China plants

SK hynix manufacturing complex in Cheongju, North Chungcheong. The company announced a delay of expansion at the site in July. [NEWS1]

SK hynix is slashing capital expenditure after a dismal third quarter and said it might consider unloading its chip factory in China.

The company, the world's second largest memory chipmaker, said Wednesday it would be reducing investment in plant, property and equipment by 50 percent in 2023, following similar moves by Micron and Kioxia due to a memory chip glut.

The steep cutback was mentioned in a conference call following the release of third-quarter earnings.

SK hynix reported 1.1 trillion won of net profit in the July-to-September period, down 67 percent on year. The result falls short of the 1.59-trillion-won market consensus, as tracked by FnGuide, and was the lowest quarterly net since the first quarter of 2021.

Revenue came in at 10.98 trillion won, down 7 percent on year and below the market estimate of 11.86 trillion won. Operating profit was 1.66 trillion won, down 60 percent and lower than the estimate of 2.16 trillion won.

The operating profit margin was 15 percent in the quarter from 35 percent in the year-earlier period.

“In contrast to the expectations entering this year, demand for memory chips has drastically declined in the second half,” said Noh Jong-won, chief marketing officer (CMO) at SK hynix, during a conference call.

“Rising interest rates aimed at containing inflation and the strengthening dollar all intensified concerns for an economic slowdown,” he said.

To limit its production capacity, the company will cut capital expenditure by more than 50 percent in 2023, according to Noh and a statement released by the company Wednesday.

Capital expenditure is likely to come in near 20 trillion won for SK hynix in 2022.

“The current planning is a cut of slightly over 50 percent, although we don’t rule out further reduction on capital expenditures,” Noh said.

In July, the chipmaker announced a delay in the expansion of its chip plant in Cheongju, North Chungcheong.

In terms of existing production, the company will initiate a cutback in the manufacturing of relatively less profitable products.

Noh expects that cuts in NAND flash manufacturing will be deeper than for DRAM manufacturing.

During the conference call, Noh mentioned the possibility of taking manufacturing out of China in response to new rules from the United States on the transfer of high-end technology to factories in the country.

On Oct. 7, the United States issued new rules that would make it nearly impossible for companies to supply factories in China with technologies for the making of DRAM memory chips rated 18 nanometer or less and NAND flash memory chips with 128 layers or more.

SK hynix makes about half of its DRAMs in Wuxi, China.

"If the time comes when it appears it is difficult to maintain operations of the fab in Wuxi, which is a contingency situation, we might have to sell the fab or equipment or bring in the equipment to Korea," Noh said.

“It would be essential for us to diversify our production bases in the long-term, but for the short-term, it would be not easy for us to change the production bases,” he added.

Citing a one-year waiver on the new rules, Noh expressed hope that such a waiver could be extended every year so that it can maintain the site until at least 2030.

The company also updated a roadmap of new chip products. The chipmaker will mass-produce its 238-layer NAND flash chips in mid-2023 after successfully developing the next-generation range in August, this year.

In trading Wednesday, SK hynix rose 0.43 percent to 93,900.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]