South Korea's SK Hynix reported a record quarterly operating loss in December 2022 after warning of an "unprecedented deterioration" in demand for memory chips, Reuters reported.
The world's second-largest maker of memory chips reported an operating loss of 1.7 trillion won ($1.38 billion) in the October-December quarter, compared with a profit of 4.2 trillion won a year earlier.
The quarterly loss is the largest since SK Group acquired Hynix in 2012.
That compares with the Won1.3tn operating loss estimates of 21 analysts compiled by Refinitiv SmartEstimate, which favours more accurate analysts.
Revenue fell 38 percent from a year earlier to 7.7 trillion won.
Samsung Electronics, the leader in memory chips, reported a 69% plunge in chip operating profit, although it remained profitable in the fourth quarter.
WSJ: Memory chip makers face the risk of a long-term decline in prices
Memory chip prices have fallen sharply over the past year and are expected to continue falling in the first half of 2023, adding to the woes of an industry that has already cut investment and jobs.
In the current quarter, the average prices of the two main types of memory chips used in everyday electronics such as smartphones, personal computers and televisions are expected to fall by double-digit percentages, according to industry analysts. In the last three months of 2022, memory chip prices fell more than 20 percent from the previous quarter, according to analysts.
Memory chip makers also issued lackluster guidance; After a boom during the pandemic, demand for electronics has continued to fall. Many memory chip makers are piling up huge inventories.
Micron Technology Inc. (MU), SK Hynix Inc. (000660.SE), Western Digital Corporation, WDC, and Tokyo-based Kioxia Holdings Corp., have disclosed plans to cut investment in capacity or reduce production in response to a worsening supply glut. Last month, Micron said it would cut jobs and expenses this year to reduce costs after reporting a loss in its most recent quarter.
Memory chips are considered a bellwether for the semiconductor industry because they are already largely commoditized and sensitive to changes in supply and demand.
Samsung Electronics Co., the world's largest maker of memory chips, reported a 69 percent year-on-year drop in operating profit in the fourth quarter of 2022.
Hynix Semiconductor reported a loss of about 812 billion won ($661 million) for the fourth quarter of 2022, according to the average estimate of analysts polled by FactSet.
Companies that make other types of semiconductors are also in the doldrums. Intel Corp. (INTC) reported a loss for the fourth quarter of 2022 and said bad market conditions will continue into the first half of 2023.
Thanks to strong demand for technology products, memory chip prices peaked in the early days of the coronavirus pandemic and began to decline in late 2021. The quarter-on-quarter decline in memory chip prices widened in the second half of last year amid macroeconomic difficulties, rising interest rates, geopolitical uncertainty stemming from the Russia-Ukraine war and China's quarantine controls.
Kim Soo-kyoum, assistant vice president for memory chips at technology market research firm International Data Corporation, says the industry is starting 2023 with high inventory levels. As demand remains sluggish, memory chip prices are expected to continue to fall throughout the year, though the quarterly decline could narrow or be flat in the second half, depending on how quickly buyers return, Kim said.
Average contract prices for the two main types of memory chips, DRAM and NAND flash, fell about 23% and 28%, respectively, in the fourth quarter from the previous quarter, according to TrendForce, a Taiwanese market research firm that tracks memory chip prices.
Devices with DRAM memory chips are capable of multitasking, while NAND flash provides storage capacity for the devices.
In the first half of this year, prices for both types of chips are likely to continue to fall, the company said. On a sequential basis, DRAM prices are expected to fall 20 percent in the first quarter and 11 percent in the second quarter, while NAND flash prices are expected to fall about 10 percent and 3 percent, respectively, over the same period.
Inflation, high interest rates and a weak economy are expected to continue to weigh on corporate and consumer spending on products such as smartphones, personal computers and data servers, all of which are big users of memory chips, according to Lumbon.
DRAM prices are expected to continue their decline in the second half of the year and will need to cut production significantly to support prices, said Avril Wu, a senior vice president at the chipmaker.
However, Ms Wu said NAND flash prices could rebound from the second half of the year as sharp price declines in recent months prompt suppliers to cut supplies more aggressively in 2023.
Samsung, the largest maker of both types of memory chips, hasn't publicly committed to steps that could reduce supply. On its last earnings call in October, Han Jin-man, executive vice president of Samsung's memory business, said the company was "not considering artificial production cuts for short-term supply and demand rebalancing."
A Samsung spokesman said the company's position remains unchanged.
Goldman Sachs forecast in a report that operating profit at Samsung's semiconductor division would be about 1.5 trillion won, or $1.2 billion, in the October-December quarter of 2022, down 83% from a year earlier. Goldman also expects Samsung's memory business to post an operating loss starting in the first quarter of this year due to large losses in its NAND flash memory business.
David Tsui, senior credit analyst at S&P Global Ratings, said global demand for technology products is likely to recover later this year, driven by factors such as China's reopening after strict coronavirus restrictions, which could revive consumer spending on products such as smartphones.
For the time being, he said, it was unclear how quickly and to what extent consumer behaviour in China would change.