Memory chip powerhouse SK hynix is slowing down the pace to ramp up production at its new Chinese plant amid mounting concerns over the negative consequences of the escalating US-China trade war.
The Korean chipmaker planned to start full operations of its new DRAM manufacturing plant, called C2F, in Wuxi, in the third quarter after the plant was completed in April. The company spent 950 billion won ($800 million) to construct the plant over more than two years, is addition to the existing C2 memory chip facility that it has run since 2006. It is aimed at rolling out DRAM chips built on finer fabrication technology.
“The timeline to go full throttle is being delayed because of unfavorable market conditions,” said an industry source on condition of anonymity, hinting that the postponement is in line with the falling demand of memory chips from Chinese partners, such as Huawei Technologies.
SK hynix’s sales in China last year stood at 15.8 trillion won and accounted for nearly 40 percent of its entire revenue -- Huawei, in particular, took up 12 percent.
Falling DRAM chip prices will likely become a double whammy for the Korean chip company.
Market research firm DRAMeXchange anticipated that DRAM prices will drop by 15 percent in the third quarter, 5 percentage points lower than the previous estimates. It also forecast the prices will further decrease by 10 percent from the previous quarter in the last three months.
DRAM is the mainstay business of the SK Group subsidiary. It accounts for 80 percent of its entire sales while the NAND flash memory business takes up 18 percent.
Also projecting falling chip prices in the latter half this year, some global and local market analysts forecast that the Korean chip company, whose operating profit reached 20.9 trillion won last year, could post a deficit in the fourth quarter this year.
The company logged 1.4 trillion won in operating income in the first quarter this year -- the lowest since the July-September period in 2016.
Meritz Investment & Securities expects that the chip manufacturer’s operating profit would stand at 647 billion won and 255 billion won in the second and third quarters, respectively, while the company would post an operating loss of 278 billion on -- the first quarterly loss in seven years.
“SK hynix has been making up for losses from the money-losing NAND flash memory business with profits from the DRAM business,” said Kim Sun-woo, a Meritz analyst, “It will not be able to cope with the loss in the fourth quarter.”
By Kim Young-won (firstname.lastname@example.org)