Global economic troubles and a worsening supply glut continue to cause problems for major chipmakers around the world. SK Hynix, the world’s second-largest memory chip maker, felt this impact directly in its first-quarter results for 2023. The start of the year was not kind, yielding a record operating loss for the South Korean manufacturer.
But despite the discouraging results, SK Hynix sees a brighter future on the horizon. Eyeing changes to production and a rebound in demand for memory chips driven by artificial intelligence (AI), the company predicts it will be moving in a positive direction soon.
The global economic slowdown has caused repeated issues for chipmakers in the wake of the pandemic. As consumers show less interest in the gadgets and entertainment devices that once led to a shortage of chips worldwide, device makers are left with too much supply. Increased memory chip production capacity has also contributed, leaving manufacturers like SK Hynix in a tough position. As a result, memory chip prices have fallen, and the impact is now being felt in the company’s bottom line.
In the first quarter, SK Hynix reported a $2.54 billion operating loss—a record figure. This starkly contrasts the $2.2 billion profit it reported in 2022. However, the staggering loss didn’t come unexpectedly. Analysts correctly predicted the $2.54 billion hit with high accuracy.
Following the news, a statement from the company said, “We likely cannot expect a dramatic increase in prices in the second quarter given current demand… but with effects of production cuts appearing from the second quarter, we expect the supply-and-demand situation to improve from the third quarter.”
So, while the middle portion of the year may not be kind to the South Korean memory chip titan, the latter half of 2023 looks more promising.
The global memory chip industry has been forced into unusual action recently due to the supply glut and sour economic conditions. SK Hynix rival Samsung noted that it will cut production in a rare move to address plummeting prices.
The South Korean firm also plans to adjust its production in the coming days. Currently, it hasn’t revealed the extent of its anticipated cuts.
Despite these plans, both companies have a positive outlook for the future. Much of this is driven by the continued growth of AI. Since the formative technology leans heavily on memory chips, demand is expected to increase as it gains more popularity.
Since the release of OpenAI’s ChatGPT —and competitors from Google and Microsoft—public interest in AI has skyrocketed. While consumers are just now getting accustomed to the technology’s real-world impact, businesses and governments around the world have been on board for years. Now, they are racing to make new advancements in areas like security and big data analytics.
With AI appearing in more and more of today’s applications and technology, memory chip demand in the coming years will be higher than ever. For SK Hynix and others, this is a promising signal and sign for the future.
Following this outlook, the company’s stock price rebounded nearly 4%. Analysts also seem to agree that the first-quarter loss is a minor setback in the grand scheme. Kim Sun-Woo of Meritz Securities said in a statement, “Specifically mentioning its [SK Hynix’s] sales shipments in the second quarter will see double-digit growth and offset first-quarter decline also sent the message that the bottom is past.”
If this is indeed true, SK Hynix will be able to shake off its rocky start to the year by preparing for a major period of demand. Expect the memory chip industry to be closely tied to the growth of AI in the coming years. If indicators of soaring popularity remain this way as time passes, the memory sector could be looking at yet another massive boom.