Chipmakers expand borrowing, layoffs as they wait for rebound in second half

Memory chipmakers are expanding their borrowings and layoffs as they brace to stay afloat in an industry that’s expected to rebound in the second half.

Top memory chipmaker Samsung Electronics borrowed 20 trillion won ($15.5 billion) from its subsidiary Samsung Display, an indication that the dip in the industry could be deep. At the end of 2022, Samsung Electronics’ short-term financial assets plunged 99 percent to 137 million won, from 15 trillion won a year before, according to its regulatory filings. The chip maker’s cash and cash equivalents slipped more than 79 percent to 3.9 trillion won in December, from the 18.9 trillion won it had in December 2021.

Businesses tend to monetize short-term financial assets to cover operational costs and for investment when they’re cash-strapped. Samsung Electronics seems to have ended up borrowing from its subsidiary, as it was out of resources for investment following the earlier monetization of its short-term financial assets.

Another chipmaker, SK hynix, instead sought outside sources, as it issued corporate bonds worth 1.4 trillion won, the largest single issuance ever for corporate bonds in Korea. The chipmaker will use the funds to pay back its debt, including 340 billion won in corporate bonds that mature at the end of February. The company is in high need of funds now, with more bonds and commercial papers coming due in October, following a 1.7 trillion won operating loss in the fourth quarter last year.

SK hynix’s borrowings almost doubled to 23.8 trillion won at the end of the third quarter last year, from 12.9 trillion won at the end of 2020.

Micron Technology decided to expand its layoffs. The U.S. company has revised its initial plan and now will cut 15 percent of its 49,000 staff, according to media reports. Earlier in November, the DRAM maker was reported to be only considering a 10 percent cut in staff.

These three chipmakers are bracing for a tough time in the short run, amid optimistic forecasts that say the industry will rebound in the latter half of the year.

In Japan, Kioxia Holdings also has a rosy outlook for the latter half of this year, regardless of its operating loss in the fourth quarter last year. “Mid- and long-term demand for flash memory will remain unchanged,” despite the industry going through a slump now, the Japanese NAND flash memory chipmaker said.

U.S. foundry manufacturer GlobalFoundries also shared optimistic outlook for later in the year, predicting demand to come back gradually, “mostly from demand for mobile devices,” after the first quarter.

Semiconductor equipment businesses are seeing a turn in market sentiment. These companies tend to be indicators for chip trends. Applied Materials, the world’s No. 1 semiconductor equipment company, is predicting that equipment demand for automobiles and industrial chips will remain steady.

The rosy medium-term industry outlook is built on expectations of bigger demand from China, as the world’s largest IT and mobile phone market reopens. Kioxia sees the industry recovering in the latter half this year “as China reopens and our customers’ inventories are normalized.”

Another reason behind the year-end optimism is growth in demand for industrial chips, such as those for artificial intelligence, as seen in ChatGPT, on top of steady demand for chips for automobiles.

Inventories of finished goods, including smartphones and computers, are getting back to normal, adding to the positive industry forecasts.

Some expect that chip production could be hit due to geographical factors, such as ongoing conflict between the U.S. and China, and that could push prices higher.