November 26, 2024

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The SK Hynix signage at the company`s office in Seongnam, Gyeonggi Province. (Bloomberg)

Chaebol groups in South Korea are looking to rethink their ambitious investment plans that were announced earlier this year as fears of a global recession are clouding their business outlook.

According to industry sources on Monday, SK hynix, the world’s second-largest memory chip maker, recently delayed a decision on its 4 trillion won ($3 billion) expansion plan for local production facilities.

The company had planned to build a new plant, called M17, within its chip-making complex in Cheongju, North Chungcheong Province, with construction set to start early next year with an aim for completion by 2025.

But at a recent board meeting held late last month, the company reportedly delayed the decision largely due to growing economic uncertainties.

An SK hynix spokesperson declined to confirm the delay, saying “Nothing has been decided yet.”

The latest news comes days after SK Group Chairman Chey Tae-won last week hinted at a possibility of change in the nation’s second-largest conglomerate’s investment plans set up last year.

“There is always a possibility of change in investment plans,” he told reporters at a forum hosted by the Korean Chamber of Commerce and Industry. “Due to soaring costs like raw materials, it’s difficult to go ahead with the original plans.”

SK hynix has invested heavily to beef up production of memory chips that go into everything from smartphones to servers in response to upbeat demand during the pandemic years. But more recently recession fears are turning consumers off pricey gadgets, driving down demand for chips as well.

Dwindling demand, coupled with slowing chip prices and rising materials costs, appears to be prompting the chip maker to limit expenditure.

Last week, Bloomberg reported SK hynix was considering a 20 percent cut in spending next year to 16 trillion won due to weaker demand for chips. The company, however, denied the report.

Batten down the hatches

In an apparent move to add momentum to the new Yoon Suk-yeol government, the nation’s top 10 business groups have announced more than 1,000 trillion won investment plans combined over the next five years, including Samsung’s 450 trillion won, SK’s 247 trillion won, Hyundai Motor’s 63 trillion won and LG’s 106 trillion won.

But many of their affiliates are taking steps to adjust their spending scheme more recently amid uncertainties growing over foreign exchange movement and inflation fears.

Earlier this month, LG Energy Solution, the world’s No. 2 battery maker for electric vehicles, said it was reviewing the profitability of its new US battery plant, citing a weaker Korean won and rising costs overall.

The company had planned to start construction of its new 1.7 trillion won plant in Queen Creek, Arizona, in the first half of this year, but the plans have been put on hold thus far.

LG Energy Solution aimed to secure a footing in Arizona, the production base of several EV startups like Lucid Motors, Rivian and Nikola. But over the past months, the amount of the original investment has swelled to mid-2 trillion won amid the recent depreciation of the Korean currency against the US dollar.

Other companies like Samsung Electronics and Hyundai Motor are also closely watching the situation because things have changed drastically over the past months since early this year when they rushed to announce ambitious plans for growth.

Samsung Electronics plans to start construction of its new 20 trillion won chip foundry plant in Texas soon, while Hyundai Motor will pour 60 trillion won to build a new car plant solely dedicated to EVs in Georgia.

No changes have been announced in the plans but their planned spending has swollen over the past months due to an unfavorable foreign exchange rate that is expected to continue for months to come.

By Lee Ji-yoon (jylee@heraldcorp.com)