SK sees silver lining in acute chip shortage

Asia's Tech News Daily

SK sees silver lining in acute chip shortage

In this file photo, a Microsoft computer is among items displayed at a Microsoft store in suburban Boston, Massachusetts. AP-Yonhap

World’s No.2 chipmaker to pursue profitability over market share

By Kim Yoo-chul

The world’s No. 2 chipmaker sees a silver lining in the severe semiconductor shortage that U.S. Secretary of Commerce Gina Raimondo claimed will take a long time to fix.

In a conference call to investors after the release of third-quarter earnings results, Tuesday, SK hynix admitted the current semiconductor shortage continued to impact vehicle- and PC-oriented industries.

“But we were expecting what we’ve identified as external variables to turn into potential or variable demand. This will be a plus factor in terms of strengthening overall demand next year,” the company told investors during the call, adding it’s been confirmed that the chip supply chain-related issues have had only a marginal impact on the long-term supply of semiconductors to its clients.

SK hynix’s share price plummeted as much as 23 percent between the end of 2020 and mid-October of this year, due to concerns of memory chip prices peaking. The share price has rebounded, but only slightly during recent trading.

The rather brisk forecast by SK hynix contrasts with assessments by top-tier investment banks and U.S. government officials, who are both ruling out a drastic improvement any time soon, since it will take time for bottlenecks in the supply chain to be ironed out.

A recent Morgan Stanley survey of chip distributors found that a majority of companies expect the shortage to persist “deep into 2022,” with 32 percent of respondents saying that it will last into 2023.

But the Korean semiconductor maker has been focusing on profitability rather than market expansion to minimize the impact of looming risks at this challenging time.

“Our top priority is how to clear out DRAM chip inventories to clients according to given lead times and planned schedules. Because there are fewer correlations between higher profits and high levels of cashflow in the DRAM business ― the central point in the high volatility of stock prices ― SK will continue managing our DRAM business by sticking to our profitability-first principle,” it said.

In line with that standpoint, SK said that it won’t spend a lot for facility investment for massive output expansion without consideration of market conditions, as the company plans to spend more for research projects for the development of next-generation chips with better cost and improved production yields (defect yields).

Regarding a delay in China’s decision to approve SK’s acquisition of Intel’s NAND flash business, the Korean chipmaker said that it expects to get the green light by the end of this year.

“If we complete the acquisition of Intel’s NAND business, it’s required for us to receive approval from eight different countries. The plan has been approved by seven countries. We only need approval from China. But based on the approvals from the seven countries on the plan, SK’s plan to acquire Intel’s NAND business has zero chance of hurting fair market competition in the NAND industry. We expect China to approve this by this year,” it told investors.

SK said that its third-quarter operating profit rose to 4.2 trillion won, up from 1.3 trillion won a year ago. This figure was the highest quarterly profit since the fourth quarter of 2018. Third quarter revenue rose 45 percent year-on-year to a record 11.8 trillion won.

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