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SK Hynix’s $33 billion rally unravelling on US-China tech war

SEOUL – SK Hynix’s US$24 billion (S$33 billion) rally in 2023 is unravelling fast as the South Korean chipmaker finds itself embroiled in an intensifying US-China tech war.

A key supplier to both Apple and Nvidia, SK Hynix has ridden this year’s artificial intelligence boom to surge more than 60 per cent through the end of August.

Bulls brushed aside the chipmaker’s dismal quarterly loss and warnings related to United States’ restrictions on China, making the stock the most expensive among Asian chip giants.

Now, a shocking revelation that its products were found inside Huawei Technologies’ Mate 60 Pro is prompting a reality check. While SK Hynix said it had suspended doing business with the Chinese phone maker since US curbs imposed in recent years, traders were nonetheless on edge, prompting a 6 per cent slide since the news hit on Sept 7.

The incident serves as a reminder of the geopolitical risks facing South Korean firms that have heavy business operations in China.

The losses may just be the start of a steeper downturn for the stock. China’s plan to broaden its ban on the use of iPhones to state firms and government agencies bode ill for suppliers in the region, including SK Hynix. Sales data for new iPhones, typically released every autumn, is a key barometer of global demand for electronics devices that run on chips.

The latest developments have brought geopolitical risks to the fore for the stock. SK Hynix in 2022 told analysts that the Biden administration’s escalating restrictions could force the closure or sale of a major plant in China in an “extreme situation”. The company gets about a third of its revenue from China, according to data compiled by Bloomberg.

Investors are also focusing on SK Hynix’s third-quarter earnings due in October, which may be worse than market expectations, according to Infinity Investment Advisory chief investment officer Roh Jongwon.

Continued weak demand for memory chips used in mobile devices called Nand will weigh on the stock price over the short term, he said.

The chipmaker’s sales in the three months through June came in at just half of its revenue a year ago, while operating losses extended for the third straight quarter.

To be sure, few expect SK Hynix to have supplied its chips to Huawei in defiance of the US ban. SK Hynix is “strictly abiding by the US government’s export restrictions” and has “started an investigation to find out more details”, the firm said.

One possibility is that Huawei may be tapping a stockpile of components it accumulated before the full set of US trade curbs had been imposed on it. But the concern is that the US government may further tighten its scrutiny on foreign partners’ business dealings with China.

“There will probably be no actions against Hynix, but the US government might probe the distribution channels,” said Mr Tom Kang, an analyst at Counterpoint Technology Market Research.

SK Hynix is also prone to profit-taking, as its rally has exceeded those of the rivals in Asia. Samsung Electronics and Taiwan Semiconductor Manufacturing Company have advanced a little more than 20 per cent this year through August, roughly a third of SK Hynix’s gains during the period. SK Hynix supplies high-end memory devices for Nvidia, a key driver of the outperformance.

“Because SK Hynix’s share rose a lot, investors probably want to lock in profit,” Mr Roh at Infinity Investment said. BLOOMBERG

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SK Hynix reports record quarterly loss, sees memory chip glut easing in second half

South Korea’s embattled chip industry: Korea Herald

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