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SK Hynix Warns of Recession-Driven Slump in Server Chip Demand

Server chips had been the only remaining bright spot in memory chip demand that drove SK Hynix to report a 56% jump in operating profit


Demand for server chips is likely to slow in the second half of the year, South Korea's SK Hynix warned, reflecting poor business sentiment.
Although SK Hynix plans to continue with infrastructure investment such as securing land and utilities for future plants, it can reduce investment in chip equipment, it said. File photo: Reuters.

 

Demand for server chips is likely to slow in the second half of the year, South Korea’s SK Hynix warned, reflecting poor business sentiment amid prospects for a global recession.

Server chips had been the only remaining bright spot in memory chip demand that drove SK Hynix to report a 56% jump in operating profit to 4.2 trillion won ($3.2 billion) in the April-June quarter.

While SK’s results were boosted by rising cloud computing demand by large data centre firms such as Amazon, the company said customers are cutting costs noticeably and reducing investment out of recession concerns.

That would hit server chip and corporate network demand, in addition to already slowing consumer demand for smartphones and PCs, SK said.

“As a general trend, customers are holding more [memory chip] inventory for all applications” like PC, smartphone and servers, SK Hynix said.

 

Long-term Cloud Demand Still Strong

The firm’s own inventory has gone up by about a week’s worth of chip sales as of end-June compared with end-March.

Insight from key customers showed long-term demand for cloud services is still expected to expand, the company said.

But short-term component shortages, macroeconomic uncertainty, and the hit to consumer-sector demand is turning server clients conservative in spending for the second half, SK Hynix said.

Although SK Hynix plans to continue with infrastructure investment such as securing land and utilities for future plants, it can reduce investment in chip equipment, it said.

Rising inflation, concerns about a downturn in major markets, and repeated Covid-19 lockdowns in China have resulted in slowing smartphone sales.

 

  • Reuters, with additional editing by George Russell

 

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

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