UPDATE 3-SK Hynix to make deep capex cut as virus spread threatens chip output

SEOUL (Reuters) – South Korea’s SK Hynix, the worlds’ No.2 memory chip maker, warned a new virus outbreak in China could pose a threat to chip production and said it would sharply reduce annual investment after posting a steep fall in quarterly profit.

FILE PHOTO: The logo of SK Hynix is seen at its headquarters in Seongnam, South Korea, April 25, 2016. REUTERS/Kim Hong-Ji

The spread of coronavirus, which has killed over 200 people and infected nearly 10,000 worldwide, threatens to hit the global economy. Manufacturers have suspended production in China and airlines canceled flights, disrupting supply chains.

“We are preparing a contingency plan,” SK Hynix finance chief Cha Jin-sweok told an earnings call on Friday.

“The chip market is continuing its improvements recently… but uncertainties linger.”

The virus outbreak has caused no production disruptions at Hynix, which has a chip plant in Wuxi, east China, but manufacturing could be impacted should the situation prolonged, Cha said.

Up until late last year, prospects for the global chip market were improving, aided by the easing of the U.S.-China trade war, the rollout of 5G mobile networks and higher spending by the data storage sector that helped reduce bloated chip stockpiles.

That optimism fueled a chip share rally, with SK Hynix rising 15% over the past three months. Shares in Hynix gained 2.3% on Friday, beating the wider market’s 0.2% rise.

SK Hynix’s conservative outlook echoes that of bigger rival Samsung Electronics, which offered a guarded forecast on Thursday after posting a 34% profit drop.

“The conservative comments from Samsung and Hynix indicate chip supplies would not grow significantly, which should help improve the supply-demand balance,” said Song Myung-sup, an analyst at HI Investment & Securities.

SK Hynix cut capex by 25% last year to 12.7 trillion won and said it will further cut investment this year. It did not give a detailed spending plan.

“When the market conditions improve, we could flexibly review investment plans, but we will take a cautious approach considering market uncertainties,” Cha said.

Hynix, which supplies chips to Apple Inc and Huawei, said its December-quarter operating profit slumped 95% to 236 billion won ($202 million), far below a 433 billion won average forecast and marking the lowest profit in seven years.

It also swung to a net loss of 118 billion won from a net profit of 3.4 trillion won, reflecting a decline in investment valuations of Japanese peer Kioxia.

Reporting by Hyunjoo Jin and Joyce Lee; Editing by Muralikumar Anantharaman, Stephen Coates and Lincoln Feast.

Leave a Reply