Predicting chip demand is hard.

Semiconductor Industry Association

SK Hynix recorded its steepest quarterly operating loss in ten years for the first quarter of 2023 but said the global memory chip market is expected to begin recovering in the second half of the year.

The South Korean memory chip maker on Wednesday reported an operating loss of 3.4 trillion won for the first quarter this year, its second consecutive quarter of loss, after it recorded an operating loss of 1.89 trillion won, in the prior quarter.

The global economic slowdown that started last year has soured demands for consumer electronics and other devices that use chips. This has caused oversupply and chipmakers and their customers to have higher than optimal inventories which is causing chip prices to plummet. The price drop for memory chips began in the second half of 2022.

In response, SK Hynix was the first memory chipmaker to announce that it was reducing its production output and spending. Last month, US competitor Micron, which reported a net loss of$2.3 billion in its latest fiscal quarter, said it was reducing its production output even more than it expected late last year.

Earlier this month, Samsung, the world's largest memory chipmaker, also announced that it will reduce production output by a "meaningful" amount.

On Wednesday, SK Hynix with production cut by memory chipmakers taking into effect, said it expects inventory across the market to improve starting in the second quarter with a gradual increase in sales.

Propelled by this, market conditions are expected to improve from the second half of the year, the South Korean chipmaker said.

Demand for high-performance server chips will be driven by the adoption of AI such as ChatGPT, which in turn will increase demand for high-capacity memory products, SK Hynix also noted. The company will supply its premium server DDR5 and high bandwidth memory as well as 176-layer NAND products, while also focusing its spending on next-gen chips such as more advanced 10nm node DRAM and 238-layer NAND to supply once the market rebounds.

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