SK Hynix Inc stuck with plans to halve 2023 capital spending after reporting its biggest quarterly loss on record, hammered by a historic industry slump. 

Slammed by prices of memory that have fallen by more than 50% since their 2022 peak, the South Korean chipmaker is cutting output and capex as it awaits a recovery in the second half of the year. Sector-wide inventory levels will continue to grow, but should peak in the six months to June, the company said.

Hynix, which supplies memory to Apple Inc, reported an operating loss of 1.7 trillion won (US$1.4 billion) for the three months ended in December on a 38% drop in revenue. The average of analyst expectations was for a 1.1 trillion won loss.

“With uncertainties still lingering, we will continue to reduce investments and costs, while trying to minimise the impact of the downturn by prioritising markets with high growth potential,” the company said in a statement on Wednesday (Feb 1).

Hynix gained more than 1.5%, recouping losses on Tuesday when larger rival Samsung Electronics Co said it would keep capex at 2022’s level, disappointing many investors hoping for a cut in 2023 supply.

The US$160 billion memory industry is reeling from a large imbalance between supply and demand. Memory makers are sitting on three to four months’ worth of inventory, while clients have yet to use up their stockpiles. South Korea’s exporters have been hitting the brakes in response to slumping consumer spending worldwide. The country’s exports declined 17% from a year earlier in January.

Hynix especially has been saddled by an outsize amount of inventory. In addition to the macroeconomic climate, an acquisition of Intel Corp’s flash memory business - since renamed Solidigm - has contributed to Hynix’s inventory piling up faster than its peers. 

“Hynix’s soaring inventory caused a decline in its memory prices that exceeded market expectations,” said Nam Dae-jong, analyst at eBest. Its inventory will remain high for the rest of the year, Nam said, adding the company needed to actively adjust capacity.

Hynix and Micron Technology Inc have slashed spending, but memory chip leader Samsung said it will keep last year’s capex pace. Samsung also said it would optimize its product mix, which Morgan Stanley analysts including Shawn Kim said is a “nuanced” message indicating a reduction in production output. 

The market will improve gradually, helped by China’s reopening and a recovery for mobile gadgets in the bottom half of the year, Hynix said. But for the full year, wafer output for both DRAM and NAND will likely fall from the previous year, it said.

Hynix, the world’s No 2 DRAM maker, has devoted years to turning around its NAND business. It sought to solidify its market share and improve profitability through the acquisition of Solidigm’s technology and factories, which includes facilities in China. The unit has since faced multiple challenges, including slumping demand and tighter US sanctions against tech exports to China.

  - Bloomberg