South Korea’s SK Hynix, the world’s No.2 memory chip maker, warned that the spread of coronavirus in China could pose a threat to chip production and said it would sharply reduce annual investment.
Manufacturers have suspended production in China and airlines cancelled flights, disrupting supply chains.
“We are preparing a contingency plan,” SK Hynix finance chief Cha Jin-seok told an earnings call on Friday.
The virus outbreak has caused no production disruptions at Hynix, which has a chip plant in the eastern Chinese city of Wuxi, but manufacturing could be hit if the situation was prolonged, Cha said.
Until late last year, prospects for the global chip market had been improving, aided by an easing of the U.S.-China trade war, the rollout of 5G mobile networks and higher spending by the data storage sector that helped cut bloated chip stockpiles.
SK Hynix’s conservative outlook echoes that of bigger rival Samsung Electronics, which offered a guarded forecast after posting a 34 percent profit drop, Reuters reported.
“The 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 has cut Capex by 25 percent last year to 12.7 trillion won and said it would further cut investment this year, citing uncertainties despite robust demand. 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 and Huawei, said its December-quarter operating profit slumped 95 percent to 236 billion won or $202 million, marking the lowest profit in seven years.
SK Hynix reported a net loss of 118 billion won as against a net profit of 3.4 trillion won, reflecting a decline in investment valuations of Japanese peer Kioxia.