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SK Hynix warns of chip supply disruption on Japan's export curbs

SK Hynix warns of chip supply disruption on Japan's export curbs
FILE PHOTO: Employee walks past the logo of SK Hynix at its headquarters in Seongnam, South Korea, April 25, 2016. REUTERS/Kim Hong-Ji -
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Kim Hong-Ji(Reuters)
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By Ju-min Park and Heekyong Yang

SEOUL (Reuters) – Chipmaker SK Hynix Inc warned on Thursday of a supply disruption due to an escalating trade dispute between South Korea and Japan, and said it would cut investment and production to support a nascent recovery in chip demand.

The global memory chip market is bottoming out after more than a year of steep price falls, and hopes of a recovery are being buoyed by Japan’s restrictions on exports of some chipmaking materials to South Korea – home to the world’s top two memory chipmakers, Samsung and Hynix.

“We are trying to secure inventories of chip materials as much as possible … but we cannot rule out production disruption if Japanese export controls drag on, so we are keeping a close eye on that,” Jin-Seok Cha, head of SK Hynix’s finance and procurement, told analysts.

SK Hynix, a key Apple Inc supplier, joins other local peers scurrying to find alternative suppliers to guard against a supply shortage of high-tech materials restricted by Japan.

The company was working on diversifying vendors and minimising input of the materials affected by Japanese export curbs, Cha added, without elaborating.

Flat-screen maker LG Display, which also secures such materials from Japan, said on Tuesday it was looking to diversify its supplier base.

South Korean Trade Minister Yoo Myung-hee met U.S. tech industry groups on Wednesday to flag concerns about the potential for the Japanese restrictions to hurt global supply chains, a trade ministry official said.

SK Hynix shares jumped nearly 3%, as investors looked beyond disappointing earnings and pinned their hopes on a semiconductor market recovery.

Shares in Samsung Electronics also rose 1%, outperforming a 0.7% drop in the wider market.

Expectations of a recovery in the chip market also were boosted by Texas Instruments Inc’s comments that the slowdown in chip demand would not last as long as feared.

SK Hynix said it would cut DRAM output capacity from the fourth quarter and increase its planned NAND wafer input reduction this year to more than 15% from 10% previously. Investment for next year would be “significantly lower” than this year, it added.

The world’s second-largest memory chip maker behind Samsung reported its smallest quarterly earnings in three years.

April-June operating profit plunged 89% to 638 billion won ($541.9 million) due to weak chip prices, missing a 828 billion won Refinitiv SmartEstimate. SmartEstimates give more weight to recent estimates by analysts who are more consistently accurate.

Prices of NAND flash memory chips have fallen sharply over the past year as output grew faster than demand and the U.S.-China trade war played havoc with global markets for electronics like smartphones.

Prices for DRAM chips, which help devices perform multiple tasks, declined 25% in the second quarter from three months earlier, according to data from tech researcher TrendForce.

Revenue fell 38% from a year earlier to 6.5 trillion won, SK Hynix said.

(Reporting by Ju-min Park and Heekyong Yang; Editing by Miyoung Kim and Stephen Coates)

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