SK Hynix and Micron Cut Production as Global Memory Chip Market Continues to Decline
In February 2019, storage chip giant SK Hynix announced that it would invest more than $100 billion to build four new wafer fabs after 2022. A spokesperson for SK Hynix said, "This is a long-term investment plan and our strategy may change depending on market conditions." However, the plan was put on hold. In the last three months of 2022, SK Hynix recorded its first quarterly loss in a decade and the largest quarterly loss in history. In the Q4 2022 financial report, SK Hynix's revenue fell 38% to KRW 76.9 trillion, and the loss amounted to KRW 1.7 trillion (approximately $1.4 billion).
SK Hynix stated that due to ongoing uncertainties, the company will stick to its plan to cut capital expenditures in half in 2023. Storage chip companies have experienced industry downturns before. The last major downturn that impacted the industry was in 2007, when Microsoft's release of the Vista system increased demand for memory, prompting major storage manufacturers to expand production. However, Vista's failure resulted in supply far exceeding demand, and DRAM memory prices plummeted. By 2008, the global financial crisis had broken out, causing market prices to fall below material costs and completely changing the industry landscape.
In the past year, the storage chip industry has experienced oversupply, reduced orders, and price drops. In 2022, DRAM prices fell from the beginning of the year to the end of the year. According to TrendForce's survey, the contract price in the second half of the year fell by more than 10% per quarter. Another storage chip giant, Micron, stated that the industry is experiencing the most severe supply-demand imbalance since the 2008 financial crisis. The situation is still deteriorating in the new year.
The long winter of storage chips continues. According to the World Semiconductor Trade Statistics Association (WSTS), the global storage chip market in 2023 will see a 17% decline. Bloomberg also predicts that major storage chip manufacturers will see record losses of $5 billion this year, and the entire industry is experiencing a historic collapse. Now, every storage chip produced by SK Hynix, Micron, Samsung, and other manufacturers means losing money.
In addition to SK Hynix, manufacturers such as Micron, Nanya, and Kioxia have also announced response plans to reduce production and other expenses in an effort to survive this "winter." According to Micron's Q1 FY 2023 financial report, the company's revenue plummeted 47% YoY to $4.09 billion. Micron CEO Sanjay Mehrotra expects the company's profitability to remain challenged until the end of 2023, so in addition to reducing production and investment, the company will also take action to reduce expenses, such as laying off 10% of its employees (around 4,800 people), reducing executive pay, and suspending bonuses for 2023. In the fourth quarter of last year, Nanya's revenue fell below NT$10 billion for the first time in ten years, down 27.8% YoY to NT$7.95 billion, a record low. Nanya expects to face a loss for at least the next two quarters.
As one of the three giants in storage chips, Samsung is no exception. On January 31, Samsung Electronics announced its Q4 2022 financial report, showing an 8% decline in revenue and operating profit.
