[Concall] SK Hynix "Weak Demand in Second Half... Facility Investment Reduction Inevitable"

[Asia Economy Reporters Sunmi Park, Hyunseok Yoo] "Demand for memory semiconductors is expected to slow down in the second half of the year. We are developing a strategy to expand high-capacity, differentiated (advanced) memory semiconductor products. Given the environment where inventory levels are bound to increase, we are considering various options to reduce capital expenditures (CAPEX) next year."

At the SK Hynix conference call on the 27th, where the company announced its highest-ever quarterly earnings, questions mainly focused on concerns about the slowdown in memory semiconductor demand in the second half and the countermeasures, rather than praise for the strong performance in the second quarter. This indicates that the growth outlook for semiconductor companies is quite bleak due to economic uncertainties accompanied by high inflation and a slowdown in IT product consumption.

SK Hynix stated, "In the second quarter of this year, DRAM and NAND flash inventory increased by about one week's worth compared to the first quarter, raising inventory burdens," and added, "We anticipate a slowdown in memory semiconductor demand in the second half and the resulting increase in inventory burdens." They further explained, "Although the planned shipment targets have been lowered, due to the nature of the memory business, it is not possible to reduce the production volume from already decided capital investments. Considering the economic uncertainties, we are carefully reviewing next year's investment plans and even considering scenarios to reduce capital expenditures."

On a somewhat positive note, as the COVID-19 situation has somewhat eased, the lead time for semiconductor equipment has shortened compared to the past, providing greater flexibility to adjust future capital investments in response to market conditions.

Despite the challenging business environment, SK Hynix also revealed goals to achieve bit growth (increase in shipment volume by bit units) of just over 10% for DRAM and 20% for NAND flash this year. However, since memory semiconductor demand is slowing in the third quarter and significant shipment growth is not expected, whether the annual shipment targets can be met will depend on how much IT product demand recovers in the fourth quarter.

Regarding the strategy to strengthen market competitiveness by expanding high-capacity, differentiated (advanced) memory semiconductor products, SK Hynix mentioned that in relation to competitor Micron's world-first mass production of 232-layer NAND flash, "SK Hynix also plans to complete trial production of 238-layer NAND within this year and begin mass production in the first half of next year."

Meanwhile, the ongoing strong dollar trend is expected to benefit SK Hynix's second-half performance, as the company conducts 100% of its transactions in U.S. dollars. SK Hynix stated, "The average KRW/USD exchange rate in the second quarter rose by 5 percentage points compared to the first quarter," adding, "This resulted in an increase of over 500 billion KRW in second-quarter sales. Even after accounting for the exchange rate offset effect on raw material imports, it is estimated that operating profit increased by more than 400 billion KRW, and a similar level is expected in the second half."

This content was produced with the assistance of AI translation services.