SK hynix is set to allocate approximately 10 trillion won for facility investments next year, marking growth of around 50 percent compared to this year. The move is a proactive response to the “semiconductor winter” and aims to maintain a leadership position in the advanced semiconductor market, including high bandwidth memory (HBM).
According to sources in the electronics industry on Nov. 9, SK hynix has decided to earmark around 10 trillion won for capital expenditures (CAPEX) in 2024. This represents an increase of approximately 3 trillion to 4 trillion won compared to this year’s estimated facility investment of 6 trillion to 7 trillion won.
The plan is to focus investments on expanding facilities to meet the surging demand in the era of Artificial Intelligence (AI). There will be a concentrated effort on the expansion of facilities related to HBM, with increased investments in through silicon via (TSV) technology, a key component in HBM production. Additionally, funds will be directed towards the production facilities for high value-added DRAM such as DDR5 and LPDDR5. On the other hand, it has been revealed that investments in the NAND flash sector, which is expected to continue facing deficits until the first half of next year, will be minimized.
SK hynix’s focus on HBM continues its triumphant march with a complete sellout. During the third-quarter earnings conference call on Oct. 26, Park Myoung-soo, vice president of DRAM Marketing at SK hynix, said, “The supply of both the 4th generation HBM3 product and the 5th generation HBM3E product for the next year has been completely sold out. Discussions about production and supply with customers and partners for the 2025 HBM volume are also underway.” An official from SK hynix stated that the plans for next year’s facility investment are not yet finalized.
SK hynix’s planned facility investment of 10 trillion won (US$7.62 billion) for next year surpasses market expectations. The securities industry initially predicted that “SK hynix’s investment for next year would be similar to this year, around 6 trillion to 7 trillion won.” Observers anticipate tight management measures extending into next year, given the economic challenges. Due to the sharp decline in memory semiconductor prices, SK hynix is projected to incur deficits exceeding 8 trillion won this year.
Faced with a scarcity of the cutting-edge semiconductor HBM products, however, SK hynix has decided to significantly increase investment for next year compared to this year. HBM is showing signs of being completely sold out, not only in next year’s production but also in the volume anticipated for 2025.
To expand the production capacity of HBM, SK hynix is significantly increasing investments in TSV technology. TSV is a technology used in HBM production, involving creating holes to vertically connect stacked DRAM. Semiconductor facilities are also being expanded with a focus on advanced DRAM such as the 10-nanometer 4th generation (1a) and 5th generation (1b).
SK hynix believes it can comfortably handle the investment using internal cash resources. As of the end of September, the company’s cash and cash equivalents amounted to a whopping 8.53 trillion won (US$6.5 billion). The debt ratio at the end of September is a modest 84.8 percent. Additionally, there is room for further borrowing if needed.
Cash flow performance is also showing improvement. Despite experiencing operating losses in the third quarter of this year, SK hynix reported an Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of 1.54 trillion won (US$1.17 billion) for the same period. EBITDA is an indicator that reflects the actual cash flow, excluding depreciation expenses, which are only accounted for on paper.
With the rebound in DRAM prices, there are expectations that SK hynix will turn a profit next year. According to market research firm TrendForce, the fixed contract price for DRAM in October rose by 15.4 percent from the previous month, reaching US$1.50. This marks the first upward trend in DRAM prices in two years and three months since July 2021. The consensus for SK hynix’s operating profit for next year is estimated at 8.44 trillion won.