Memory chipmaker SK Hynix weighs slashing spending by a quarter in 2023

SEOUL (BLOOMBERG) – SK Hynix is considering cutting its 2023 capital expenditure by about a quarter to 16 trillion won (S$17 billion) in response to slower electronics demand than anticipated, people familiar with the matter said.

The world’s second-largest memory maker is sticking largely with plans to spend about 21 trillion won this year building up capacity in Dram and Nand chips, the people said. But rising uncertainty over falling demand for the chips, which go into everything from smartphones to servers, has forced a rethink of expansions next year, they said.

The Apple supplier’s move comes as global tech companies sound the alarm over macroeconomic risks from rising interest rates, which are turning consumers off pricy gadgets. Hynix has not made a final decision about capacity expansion plans, the people said. An SK Hynix representative declined to comment.

Taiwan Semiconductor Manufacturing Company (TSMC) said on Thursday (July 14) that it could trim spending on expansion by as much as 9 per cent this year from initial projections.

Apple is TSMC’s biggest customer, accounting for an estimated quarter of its revenue. Chief executive officer C.C. Wei told analysts on a conference call that he was unconcerned about potential inventory build-ups of high-end smartphones. In April, the iPhone maker said it was grappling with supply-side constraints that could shave as much as US$8 billion (S$11.2 billion) off revenue in the June quarter.

Chip stocks including Hynix, Samsung Electronics and Micron Technology have fallen more than 25 per cent this year as companies wrestle with a potential global recession.

But investors have recently bought back Samsung and TSMC, judging them oversold. Last week, Samsung triggered an Asian stock rally when it reported a better-than-projected 21 per cent jump in revenue. On the flip side, Micron warned of oversupply and gave a surprisingly downbeat forecast for the current quarter.

The memory chip industry, which has historically endured repeated boom-and-bust cycles, is particularly sensitive to signs of a glut or shortage in supply.

Many industry observers regard capacity cuts by major players as a signal that they anticipate slowing demand and are moving to protect prices. Companies like Hynix tend to control supply to prop them up.

In April, Hynix predicted a bounce-back in PC and smartphone sales in the seasonally stronger second half of 2022, depending on how long China’s Covid-19 lockdowns fare. Curbs across many of the country’s major cities including Shanghai began to relax around June.