According to edaily, CFO Che Chenxi expressed after the second quarter financial meeting that SK hynix maybe have production problems if Japan extended its export restrictions to South Korea when interviewed by reporters about the possibility of damage to SK hynix caused by Japanese export restrictions.

Since July 4th, Japan has strengthened export restrictions to Korea on semiconductor and display raw material. Restricted list contains OLED display material polyimide fluoride, semiconductor materials photoresist and high purity hydrogen fluoride. Mr Che said the company was actively safeguarding its inventory and starting to diversify its supply chain to reduce raw materials consumed in the process hoping reduce the likelihood of production interruption.

But the biggest problem is Japan's attempt to expand export restrictions by removing South Korea from the white list. Japan has already conveyed intention that it would remove South Korea from the white list as soon as mid-August during consultations between Japanese and south Korean officials on 12th.
The South Korean government estimates that more than 1,100 items would be affected if Japan excluded South Korea from the white list. For SK hynix which makes semiconductors, everything from raw materials to equipment could be affected and, worst of all, production could be disrupted.

SK hynix CEO Lee Si-hee also left for Japan on the 21st and develop strategies to ensure inventory and diversification. At present it has been put into implementation to meet the urgent need. Che Chenxi also said that SK hynix can not rule out the possibility of production disruption so the company will closely monitor the situation and real-time response. However, it is difficult to talk about Japan's additional export restrictions in the current situation.

Operating revenue of SK hynix was KRW6452.2 billion and operating profit was KRW637.6 billion in the second quarter of this year. Second-quarter revenue and profit decreased 38% and 89% respectively compared with the same period of last year. In general, demand for semiconductors recovered slowly and prices fell more than expected.

According to the Nikkei Chinese website on July 25, SK hynix said on July 25th that it will cut production of NAND flash by 15% in 2019 compared with 2018 in response to Japanese export controls on some key semiconductor materials to South Korea. The company sees a need to conserve raw materials as the Japanese government expands export controls on semiconductor materials. It is the first time the Korean semiconductor giant has adjusted its production schedule since the July 4th regulation was expanded. SK hynix believes cutting production to conserve raw materials will protect it from export controls in the short term. SK hynix currently has 2 months storage inventory so it is less likely to have an impact on its customers in the short term.

Earlier this month, Japan tightened controls on three key raw materials exported to South Korea: photoresist, hydrogen fluoride and fluoropolyimide. It is also the first time that a Korean semiconductor company has announced changes to its production plans since Japan imposed export controls on Korea.

Flash memory is the semiconductor used to store data on smartphones and servers. According to IHS Markit, a British research firm, SK hynix's global market share is 11%, Together with another type of memory (DRAM) for storing data temporarily, the company ranks second in the global memory market behind Samsung.

When it comes to how to respond to Japan's export controls on South Korea, Mr Che said, "If the controls become permanent, we cannot rule out the possibility of an impact on storage production." On this basis, he highlighted that it will reduce the use of materials to prevent problems.

In fact, SK hynix forecast in April that full-year production, which is calculated according to the input of silicon wafer, would be 10% lower in 2019 than the last year, given deteriorating memory conditions. Some analysts believe that SK will increase production cuts due to the impact of the Japanese government's expansion of export controls.

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