November 28, 2024

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The SK hynix headquarters in Icheon, Gyeonggi Province (Yonhap)

In the wake of escalating competition between the US and China, SK hynix said it is reviewing plans for future operation of its manufacturing facilities in China, as it announced its worst operating profit losses on Wednesday.

“We are looking at various factors of long-term geopolitical risks, market demand and operation efficiency to comprehensively review the future operation of our manufacturing plant in China,” Kim Woo-hyun, chief financial officer for SK hynix, said on the earnings call for the first quarter of this year.

“For now, there is not any special change in operation.”

SK hynix, the world’s second-largest memory chip maker, reported an operating loss of 3.4 trillion won ($2.53 billion) in the first quarter of this year, falling into the red for a second consecutive quarter amid slumping demand and falling prices.

In a regulatory filing, the chipmaker said its sales in the January-March period marked 5.08 trillion won, down by 34 percent from the previous quarter. Operating profit plunged by 79 percent and net loss came to 2.58 trillion won during the three-month period.

“The downturn in the memory chip market continued in the first quarter of this year. The company’s sales from the previous quarter and the loss in operating profit grew amid weak demand and falling chip prices,” SK hynix said, adding that it expects sales to gradually rebound in the second quarter.

On the operation of its manufacturing facilities in China, the CFO explained the company will make efforts to extend the exemption period on the US regulation banning exports of advanced chip equipment in China.

In announcing the chip support program to offer ample subsidies to attract global chipmakers to build manufacturing facilities on its own soil, the US has included a guardrail provision limiting beneficiaries from expanding production in China.

With existing plans to build chip production facilities in the US, South Korean chipmakers, including SK hynix and Samsung Electronics, have been under pressure, as they also have key manufacturing plants in China. For SK hynix, its China plants produce about half of its global DRAM chips.

Amid declining consumer sentiment and macroeconomic factors, the company delivered a softer outlook of the market, lowering its prediction on the demand for DRAM to show mid-high single-digit growth and mid-high 10 percent for NAND flash memory.

Still, production cuts by memory chip makers will improve market conditions from the second half of the year, the company added.

SK hynix said it has seen small changes in consumer sentiment after its rival Samsung Electronics joined other companies by announcing a slash in production to consume swelling inventory.

“We cannot say there is a big change in consumer sentiment, but we now receive inquiries from clients on whether we would be able to actively supply for the second quarter, to prepare for the second half of the year,” Park Myung-soo, the head of DRAM marketing at SK hynix, said during the earnings call.

“We are receiving many questions on supply sustainability for advanced products such as LPDDR, server DDR5 and graphic chips.”

One of the sectors that will lead growth in demand is generative artificial intelligence, the company said, adding that ChatGPT and other such programs utilizing generative AI would pull up shipments of advanced server memory products by up to 40 percent in the next five years. Sales of DRAM and NAND memory would also go up by 30 percent, it predicted.

By product, SK hynix expected a sixfold increase in sales of high capacity DDR5, and 50 percent growth for High Bandwidth Memory this year when compared to the previous year.

In line with this forecast, the chipmaker said it will focus on sales of advanced DRAM products such as DDR5, High Bandwidth Memory and 176-layer NAND flash.

“The demand for DDR5, LPDDR5 and HBM3 is expected grow from this year, and we have the best quality products, so we will bolster our leadership in the premium market,” the CFO said.

“The difficulties the memory chip market is experiencing are real. But I believe now is the trough and the market will find a balance of demand and supply soon,” he added.

By Jo He-rim (herim@heraldcorp.com)