heightened instability anticipated in the latter half of the year for SK Hynix due to US tariffs
Article:
- Bloomberg
SK Hynix Inc warns of tumultuous times ahead, despite robust demand for AI memory chips from tech giants, owing to uncertainty surrounding US tariffs.
The company boasted a stellar 158% surge in March-quarter operating income, buoyed in large part by stockpiling in anticipation of President Donald Trump's tariffs.
Despite maintaining shipment growth projections for high-bandwidth memory (HBM), essential for Nvidia Corp's AI accelerators, SK Hynix remains cautious. Questions linger about the impact of US tariffs on tech demand in the latter half of the year.
"Everyone's wondering, 'How will tariffs affect tech demand in the coming months?'" posits SLSA Securities Korea analyst Sanjeev Rana.
It's premature to gauge the tariffs' impact at present, admits SK Hynix CFO Kim Woo-hyun. With protectionist policies like tariff regulations and export restrictions on the rise, predicting market conditions has become a daunting task.
While US clients account for around 60% of SK Hynix's revenue, direct US exports account for a relatively low percentage. Memory shipments for US customers are predominantly funneled to locations outside the country.
For the March quarter, SK Hynix reported an impressive operating income of 7.44 trillion won (US$5.2 billion) on a 42% increase in revenue. Accelerated shipments of advanced chips and memory for PCs and smartphones contributed to the company's strong performance, following a record-breaking quarter.
SK Hynix executives reassured investors that tariff-induced stockpiling would not lead to bloated customer inventory, potentially weakening demand and impacting earnings in the second half of the year. Instead, chipmakers are expected to factor in market uncertainties and exercise caution with production plans, thereby avoiding supply gluts or sudden drops in demand.
The growth in AI infrastructure investments, driven by low-cost models like DeepSeek, has fueled interest in HBM chips. This trend suggests that HBM's long-term demand will remain robust.
SK Hynix is collaborating with Nvidia on its next-generation HBM4 and enhancing factories fabricating high-end DRAM to secure its position. The M15X plant, under construction in Cheongju, is slated to open by year-end, and total investment on the site is projected to surpass 20 trillion won.
Sales of 12-layer HBM3E, a cornerstone of SK Hynix's AI memory strategy, are expected to increase significantly, accounting for over half of total HBM3E revenues in the second quarter. The HBM3E chip, currently the most advanced HBM on the market, is designed to work seamlessly with Nvidia's graphic processing units.
Tariffs and the Tech Industry
- Increased costs: Protectionist policies tend to escalate production expenses due to higher import prices, which might cause consumer prices to soar and curb demand for affected products like memory chips.
- Supply Chain Disruptions: Tariffs often precipitate supply chain upheavals, compelling firms to explore alternative manufacturing sites or diversify their supply chain networks. This process can be costly and time-consuming, potentially jeopardizing production efficiency and timelines.
- Market Dynamics and Innovation: The expenses associated with tariffs can impinge on research and development budgets, potentially curtailing innovation and compelling companies to prioritize areas less affected by tariffs, like AI.
In essence, SK Hynix's situation exemplifies the typical challenges faced by the tech industry in the face of tariffs. The company's success in navigating these difficulties would hinge on its capacity to adapt strategically and innovate consistently to remain competitive in an ever-evolving market landscape.
- The tariffs imposed by the US government are causing uncertainty for SK Hynix Inc, as they may impact tech demand in the latter half of the year, potentially affecting the company's revenue and earnings.
- SK Hynix's CFO Kim Woo-hyun admitted that it's premature to gauge the tariffs' impact, as predicting market conditions has become challenging due to rising protectionist policies like tariff regulations and export restrictions.
- Despite maintaining shipment growth projections for high-bandwidth memory (HBM), essential for Nvidia Corp's AI accelerators, SK Hynix remains cautious about the potential impact of US tariffs on tech demand and market uncertainties.
- With the growth in AI infrastructure investments and demand for HBM chips, SK Hynix is collaborating with Nvidia on its next-generation HBM4 and enhancing factories fabricating high-end DRAM to secure its position in the industry, despite the challenges posed by tariffs.
