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SK hynix to slash investment amid worsened outlook for chip demand

Chipmaker achieves all-time high net income of W15.5tr in 2018, but Q4 figures bode ill for this year

Amid negative forecasts for memory chip prices and demand for the first half of the year, SK hynix, the second-largest memory provider, said Thursday it will slash capital expenditures on production facilities including equipment.

During a conference call held after announcing its earnings results for the fourth quarter of 2018 and for the entire year, the company’s officials hinted at a significant reduction in total investment this year due to weakening macroeconomic conditions and a subsequent slowdown in demand.

“Compared to 17 trillion won ($15 billion) worth of investments executed last year, the total amount for this year is estimated to be reduced,” said Cha Jin-seok, chief financial officer of SK hynix. “Reflecting volatilities in the macro economy and slowing demand in various markets, our spending on equipment is to be cut by 40 percent.”

The company could decrease spending more than it has initially planned if demand for memory chips remains slow for longer than expected this year. 


Regarding its plan to expand the capacity of the Wuxi fabrication line in China, the official said, “The pace of the ramp-up could slow down in accordance with market conditions.”

The chipmaker, however, will continue investing in constructing a new fabrication line -- M16 – in Icheon, Gyeonggi Province.

Owing to favorable conditions in the memory market driven by high demand for data centers and high-performance mobile devices, SK hynix said the consolidated sales of fiscal year 2018 totaled 40.45 trillion won while reaching 20.84 trillion won in operating profit. The annual net income stood at 15.54 trillion won.

However, memory demand started slowing in the second half, as internet data center businesses adjusted their plans for orders.

As a result, the chipmaker’s sales fell by 13 percent quarter-on-quarter to 9.94 trillion won, while operating profit amounted to 4.43 trillion won, down 32 percent for the same period.

Taking into account fourth-quarter figures, the company views this year’s market more negatively than before.

“Demand falls could be steeper than expected because of compounding issues of trade conflicts between the US and China, adjusting inventories at server companies and inventory handling at memory makers,” said Kim Seok, vice president for marketing at SK hynix. “The inventory adjustment issue will be resolved by the first half of the year. And we forecast that about 55 to 60 percent of this year’s total demand is to be created in the second half.”

Meanwhile, the world’s top memory provider Samsung Electronics is anticipated to announced around 45 trillion won in annual operating profit for the semiconductor business for 2018. Its earnings will be announced on Jan. 31.

Ahead of the announcement, Samsung said it will offer the largest-ever incentives of 38.18 billion won for its primary and secondary contractors. Employees and executives of a total of 224 firms will be subject to the extra bonus.

By Song Su-hyun (