SK Hynix announces capex cuts by 50%, and selling China fabs could be option in contingency plan

Judy Lin, DIGITIMES Asia, Taipei 0

SK Hynix considers selling fabs in China if situations deteriorates in Chip War.

In the third quarter earnings result conference, SK Hynix Chief Marketing Officer Kevin Noh said the company is cutting its 2023 capital expenditure by more than 50% year-on-year in light of over-supply on the memory market and revealed consideration of selling its fabs in China if US-China Chip War makes its operation in China too difficult to continue.

Noh stressed it is a contingency plan, although the company hopes to continue operating in China. He said if the Chip War makes it too difficult to maintain its operations in China, it will consider selling the fab, selling the equipment, or moving the equipment to South Korea as a contingency plan.

The current year's investment is expected to be in the upper range of KRW 10-20 trillion (approximately US$7 - 14 billion)

SK Hynix also revealed that it plans to gradually reduce the production volume of its relatively less profitable products. The plan is to normalize the market's supply and demand balance by maintaining current investment trend and production reduction for a certain period of time.

"We will leap forward as a leading semiconductor memory player by overcoming this downturn based on our potential that has always turned crises into opportunities in the past," said Noh.

SK Hynix reported on October 26 with sales and operating profits decreased by 20.5% and 60.5% quarter-on-quarter respectively as the semiconductor memory industry faces unprecedented deterioration that sees slumping shipments from PCs and smartphone manufacturers, who are major buyers of memory chips.

However, SK Hynix anticipated that the demand for memory chips in data center servers, while decreasing in the short term, will continue to grow in the mid-to-long-term, as hyper-scale data centers are continuing their investment to meet the increasing scale of industries such as artificial intelligence (AI), big data and metaverse. SK Hynix emphasized that as it is leading the latest DRAM technologies such as high bandwidth products, including high bandwidth memory 3 (HBM3) and DDR5/LPDDR5, the company will solidify its position in terms of long-term growth.

In addition, SK Hynix stressed that it will expand mass production of the industry's first 238-layer 4D NAND next year, which was developed in the third quarter of this year, and by doing so secure cost competitiveness and increase profitability continuously.

Although SK Hynix and Samsung both received a 1-year exemption from the US government from the new export controls announced on October 7, a recent report by Rhodium warned that the South Korean memory manufacturers should not count on the renewal of the license, as the ban is likely to spill over to them eventually.

Since memory chip manufacturers need to upgrade their equipment frequently to ensure competitiveness, US export control on importing advanced DRAM and NAND tools would make their investments in China eventually uncompetitive.

"New restrictions on the memory market are considered to be most acute because Chinese companies are much more competitive in memory (90% of China's leading-edge capacity), compared to logic chip production (10%)," said Rhodium.

Editor's note: SK Hynix responded with the following statement for clarification:

SK hynix position on the issue:

October 26, 2022

- We would like to clarify our position with regard to the operation of our fabs in China as below:

- During the 3Q22 earnings conference call this morning, one of our executives made general statements that we could consider a contingency plan in the future *IF* various business circumstances such as geopolitical issues arise, which make it difficult for us to operate our Chinese fabs.

- Particularly, comments on the possible transfer of the Chinese facilities are based on extreme cases with low possibilities. We want to make it clear that we haven't reviewed such options in detail and seriously.

- We are currently operating our China fabs without issue as we were given by the Department of Commerce a one-year authorization on the US export controls on chip-manufacturing equipment and we expect to continue the normal operations of our fab in China.