Samsung and SK Hynix "adjust strategy": new memory factory production plans moved up

Facing the surge in demand for memory chips driven by artificial intelligence, South Korea’s two major storage giants, Samsung Electronics and SK Hynix, are accelerating the commissioning process of new wafer fabs. The strategic focus has shifted from cautious supply control to active capacity expansion in order to seize the benefits of the industry's "super cycle." According to South Korea’s Chosun Ilbo, SK Hynix plans to advance the trial operation of its Yongin Phase 1 wafer fab to February-March next year, starting before the completion date. Samsung Electronics is also moving up the production schedule for its Pyeongtaek P4 fab from the first quarter of next year to the fourth quarter of this year, bringing forward production plans by about three months. Both companies will use the new production lines to focus on high value-added products such as high-performance DRAM and HBM (High Bandwidth Memory). The background to this round of accelerated expansion is the explosive demand for server chips brought about by the global expansion of AI data centers. According to KB Securities, as of February this year, the memory chip demand fulfillment rate of major customers was only about 60%, with the shortage worsening compared to the fourth quarter last year. About 70% of Samsung Electronics' memory shipments have been absorbed by AI data center enterprises. The market widely expects that the supply shortage will continue until 2027. Citi Group predicts that the supply growth rates of DRAM and NAND flash memory will be 17.5% and 16.5% respectively this year, while demand growth rates could reach as high as 20.1% and 21.4%. New production lines launching months ahead of schedule SK Hynix is building its Phase 1 wafer fab in the Yongin Semiconductor Cluster with a target completion date of May next year. The external framework is about halfway done, and three of the six clean rooms are being constructed simultaneously. The three-story factory is six times the size of its Cheongju M15X wafer fab. According to Chosun Ilbo citing insiders, SK Hynix is preparing to start trial operations before the scheduled completion date, possibly as early as February-March next year. The company plans to rapidly install equipment in the first completed clean room, prioritizing the production of high-performance DRAM (such as DDR5) and HBM products, which are in great demand in the AI era. Samsung Electronics is building its P4 (fourth factory) wafer fab in Pyeongtaek, originally scheduled for completion in the first quarter of next year but now planned to start production in the fourth quarter of this year, compressing the production timeline by about three months. Samsung flexibly allocates equipment between memory and wafer foundry operations according to market conditions. P4 is expected to focus on producing currently in-demand high-performance memory. Reportedly, Samsung has recently set a strategy to build a new 10-nanometer sixth-generation (1c) DRAM production line for HBM in the P4 factory, with a monthly capacity of 100,000 to 120,000 wafers. According to a semiconductor industry insider cited by Chosun Ilbo: "Korean memory companies are very busy moving up production schedules." Capacity expansion still can’t keep pace with demand growth Market research firm Omdia reports that Samsung Electronics’ annual DRAM capacity (in wafers) will rise from 7.47 million in 2024 to 8.175 million this year. SK Hynix’s capacity in the same period will increase from 5.115 million to 6.39 million wafers. With the new factories launching ahead of schedule, output is expected to grow even further next year. The core driver behind the accelerated expansion by the two companies is the surge in demand for high-performance DRAM for servers as AI data centers expand. As production lines focus on high value-added HBM chips, the output of generic DRAM is relatively reduced, intensifying supply shortages. KB Securities points out: "As of February, memory chip supply shortages have worsened compared to the fourth quarter last year, and major customer demand fulfillment rate is only 60%. 70% of Samsung Electronics’ memory shipments are absorbed by AI data center enterprises." Citi Group analyzes that this year DRAM supply growth is 17.5%, and NAND flash supply growth 16.5%. In contrast, DRAM demand growth is expected to reach 20.1%, and NAND flash demand growth 21.4%, meaning demand continually outstrips supply. Morningstar, Morgan Stanley, and other major market research institutions predict that the memory supply shortage will last until 2027. DS Investment Securities states: "If supply growth in 2027 is only 1%, this DRAM cycle will last at least until 2027. Server-centric DRAM demand is directly related to competitiveness and cannot be easily cut back. Price increases are expected to last until the third quarter of 2026." Companies confirm significant increase in capital expenditure Samsung Electronics and SK Hynix both stated at their recent earnings releases that they will increase this year’s capital expenditure to address memory shortages. Kim Jae-june, Vice President of Samsung Electronics’ memory business, said: "As AI-related demand is expected to persist, we plan to greatly expand equipment investment by 2026. However, equipment expansion this year and next will be restricted, which may make the supply shortage even worse." This statement highlights the lag characteristic in semiconductor capacity expansion. Even though companies are increasing investment and bringing production online earlier, it still takes time from construction to stable mass production, so short-term supply and demand imbalance is hard to fully resolve. A semiconductor industry insider explained the strategic intent behind the early trial operation: "This is to quickly enter the trial phase, stabilize the mass production system, and send a signal to customers that we can supply stably." Risk disclosure and disclaimer The market has risks; investment should be cautious. This article does not constitute personal investment advice, nor does it take into account any individual user’s special investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their particular circumstances. Invest at your own risk.