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SK Hynix plans production cuts

With second quarter a disaster, it announces investment reduction
July 26,2019
SK Hynix will reduce production of memory chips this year as demand remains weak and uncertainties in the global economy persist.

The comments came during the chipmaker’s second quarter results announcement on Thursday. Between April and June, the company’s operating profit was 637.6 billion won ($540 million), down 53 percent on quarter and 89 percent from the same period last year. This was the first time in 12 quarters that operating profit fell below the 1-trillion-won threshold.

“A number of unexpected factors occurred in the past quarter that heightened uncertainty both in terms of demand and supply in the chip market,” said CFO Cha Jin-seok during a Thursday conference call. “The demand recovery didn’t meet our initial expectations - the inventory level of suppliers still remains high, while DRAM and NAND prices continued to steeply fall.”

Shipments for both DRAMs and NAND increased on quarter but weren’t enough to offset the 25-percent decline in average chip prices. Second quarter revenue for SK Hynix fell 5 percent on quarter to 6.45 trillion won, down 38 percent from last year.

As for future plans, SK Hynix forecast that negative factors in the memory chip business would continue in the second half, particularly in the DRAM business, which generates roughly 80 percent of its revenue. Data server DRAM clients, stuck with an oversupply chips from last year, are likely to keep their conservative buying stance throughout the year, SK said. Mobile DRAM demand was subject to higher uncertainty in the market due to the U.S.-China trade war.

Considering the market situation, the company announced a plan to “adjust” production and investment.

DRAM production will be cut, while the company’s M10 plant in Icheon, Gyeonggi, which mainly produced DRAMs, will have part of its capacity transferred to the production of non-memory CMOS image sensors (CIS). The company explained the effect of reduced DRAM capacity will become apparent around the fourth quarter and continue through next year.

NAND chip production will be reduced as well. SK Hynix announced earlier this year that it would reduce wafer input for NAND by more than 10 percent on year in 2019. On Thursday, this figure was adjusted to 15 percent.

Investment next year will be “significantly lower” than this year. The expanding of clean rooms at the M15 factory in Cheongju, North Chungcheong, and the installing of equipment for the M16 factory in Icheon, set for completion in the second half, will be slowed.

Troubles with Japan are also taking their toll. Earlier this month, Japan placed export restrictions on three high-tech materials, two of which are crucial to the production of high-end semiconductors.

The industry estimate is that SK Hynix and Samsung Electronics would be able to maintain production for around three months, although neither company has confirmed that.

During the conference call, Cha said SK Hynix was “securing materials, diversifying vendors and [finding ways to] reduce the use” of restricted materials, but added further details could not be disclosed.

“We can’t rule out the possibility of damage to our production if the regulations last for the long term - we’re carefully eyeing the issue to react accordingly,” he said.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]