SK Hynix faces revenue drop and operating loss amid chip market turmoil

SK Hynix, the world’s second-largest memory chip maker, reported a significant drop in revenue and an operating loss for the second quarter of 2023. The company’s financials have been hit hard by weak memory chip pricing and demand, leading to losses for multiple consecutive quarters.
SK Hynix chip investment in NANDIn the April-June quarter of 2023, SK Hynix recorded a revenue of 7.31 trillion won, representing a staggering 47 percent decrease compared to the same period last year. The company’s operating loss reached 2.9 trillion won ($2.28 billion) in the same quarter, a sharp decline from the 4.2 trillion won profit reported a year earlier.

The memory chip market has been grappling with a deep downturn, which began in late 2022 and has persisted through 2023. However, SK Hynix offered a glimmer of hope, stating that the market showed signs of recovery in the second quarter. The revival was attributed to strong demand for artificial intelligence applications, driving increased purchases of memory chips from corporate buyers and gaming personal computers.

Despite reporting an operating loss, SK Hynix’s shares saw an upward surge following the announcement of the market’s potential turnaround. The company remains cautiously optimistic about the second half of 2023, as demand for memory chips is expected to rise compared to the first half.

One significant factor impacting the chip market has been the economic headwinds affecting demand from buyers. To adapt to the challenging environment and prevent further depreciation of stockpiles, memory chip makers, including SK Hynix, reduced production during the first half of 2023.
Q2 2023 SK Hynix revenueSK Hynix recognized the varying market conditions depending on the type of chips. The company announced plans to cut production of its NAND Flash chips, primarily used for data storage, due to high inventories and low profitability. However, the demand for high-end DRAM chips saw an increase, helping to offset some losses in the second quarter.

The boom in artificial intelligence applications has notably contributed to SK Hynix’s improved sales of high-end DRAM chips, particularly those used in generative AI. With its 50 percent market share in high bandwidth memory (HBM) DRAM as of 2022, the company has been a leader in supplying chips that can efficiently process large amounts of data for AI applications.

Industry experts expect SK Hynix’s DRAM business to recover and return to profitability in the fourth quarter of 2023, driven by strong sales of premium products. However, uncertainties remain, as demand for NAND Flash chips from Chinese mobile firms continues to stagnate, potentially impacting the chipmaker’s full recovery.

Despite the challenging market conditions, SK Hynix remains hopeful about the future, counting on the rebound of AI-related demand and the potential resurgence of the memory chip market in the coming quarters.

SK Hynix leads the market in high bandwidth memory (HBM) DRAM used in the fast-growing field of generative AI. It had a 50 percent market share in HBM as of 2022, followed by Samsung Electronics’ 40 percent and Micron’s 10 percent, according to TrendForce.

SK Hynix has slashed its capital expenditure (Capex) by 50 percent in 2023 from Capex of 19 trillion won in 2022.

SK Hynix said memory demand is recovering from 2Q, but insufficient to normalize inventory levels that have been elevated since 2H’22.

Considering higher industry inventory levels and lower profitability of NAND compared to DRAM, SK Hynix decided to cutback NAND production further.

To secure capabilities for high-density DDR5/HBM within limited Capex budget, SK Hynix is making efforts to improve productivity, shorten equipment delivery time and reduce investment in others.