Emergency Plan Prepared for Worst-Case Scenario
[Asia Economy Reporters Sunmi Park and Chaeseok Moon] It has been confirmed that SK Hynix is preparing an emergency plan to prepare for the worst-case scenario regarding the U.S. restrictions on semiconductor equipment exports to China. The emergency plan may include various measures such as the sale of factories in China and the removal of semiconductor equipment from within China.
On the 26th, SK Hynix’s Head of Business, Jongwon Noh, stated during the Q3 earnings conference call regarding the U.S. export restrictions on semiconductor equipment to China, "For now, we have received a one-year grace period from the U.S. Department of Commerce allowing equipment supply to the D-RAM factory in Wuxi, China, and the NAND flash factory in Dalian acquired from Intel, enabling equipment import without separate permits," adding, "We hope that this grace period will be extended annually."
If memory semiconductor companies face difficulties in introducing advanced equipment, factory operations will be disrupted. SK Hynix needs to introduce extreme ultraviolet (EUV) lithography equipment at the Wuxi D-RAM factory, but it is currently expected that equipment import will be impossible for the time being. Assuming the absence of EUV, to expand the D-RAM factory, some EUV equipment must be kept in Korea as backup to support continued operations. In this case, an increase in production costs must be accepted.
SK Hynix also revealed that it is preparing an emergency plan for the scenario where the grace period is not extended after one year. Noh said, "Since licenses must be obtained separately for each piece of equipment, equipment introduction may be difficult," and added, "If equipment import issues cause operational problems at factories in China, including the Wuxi factory, we will have to activate the ‘emergency plan.’ In the worst-case scenario, where operation is deemed impossible, we are reviewing various scenarios such as factory sales, equipment sales, and removal to Korea." However, he added, "Since this emergency plan is for an extremely extreme situation, we hope to operate the factories without such circumstances arising."
As long as factories operate in China, various U.S. restrictions such as equipment regulations inevitably cause difficulties for SK Hynix, but relocating production bases is not easy. Noh said, "Previously, the business model of producing products in specific regions in the most efficient and cost-effective way and supplying them worldwide worked well, but increasing uncertainties from various restrictions are affecting management decisions," and added, "Although diversifying production bases appears essential in the mid-to-long term, making significant changes to production bases in the short term is not easy."
Meanwhile, SK Hynix expects that semiconductor memory inventory, which is currently higher than average, may continue to rise at least until the first quarter of next year, and plans to reduce production mainly of low-profit products. In addition, it decided to cut next year’s investment scale by more than 50% compared to this year’s investment, which is expected to be in the high 10 trillion won range.
SK Hynix stated, "We are reviewing production cuts by adjusting wafer input, rearranging lines within factories, and adjusting line operations to improve future efficiency, some of which are already being implemented." Furthermore, explaining the strategy to defend profitability by expanding high value-added product lines, they said, "238-layer NAND flash will begin mass production and supply from mid-next year, and the proportion of DDR5 for servers will expand to over 30% by the end of next year."
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