SK Hynix Warns of Chip Supply Disruption on Japan's Export Curbs

Chipmaker SK Hynix 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 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 US 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 percent, as investors looked beyond disappointing earnings and pinned their hopes on a semiconductor market recovery.

Shares in Samsung Electronics also rose 1 percent, outperforming a 0.7 percent 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 percent from 10 percent 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 percent to KRW 638 billion ($541.9 million) due to weak chip prices, missing a KRW 828 billion 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 US-China trade war played havoc with global markets for electronics like smartphones.

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

Revenue fell 38 percent from a year earlier to KRW 6.5 trillion, SK Hynix said.

© Thomson Reuters 2019