SK Hynix: Storage prices will continue to rise

According to the Financial Times, SK Hynix currently has enough dynamic random access memory (DRAM) and NAND flash memory inventory to maintain for about four weeks. With the advancement of artificial intelligence (AI) services, demand continues to grow while supply remains limited. Analysts expect the upward trend in memory prices to continue this year. Some believe that the market has entered a phase dominated by suppliers. According to the US financial blog Zero Hedge on the 21st, SK Hynix recently shared this situation in discussions with Goldman Sachs researchers, including Guinee Lee. Lee pointed out that SK Hynix expects "significant investments to continue as customers make significant progress in developing AI services." He added, "While PC and mobile users may reduce configurations due to significant price increases, which may suppress demand, the trend of rising prices may continue due to limited supply expansion capacity." He also noted, "The shortage of clean room space in the entire industry has exacerbated supply constraints and created a favorable environment for price increases." At the same time, he analyzed, "Customers realize that significantly expanding capacity in the short term is difficult, so the likelihood of repeated ordering to ensure sales volume, as in the past, is low." Specifically, SK Hynix's DRAM and NAND inventory has dropped to supply levels of about four weeks, which is seen as further strengthening the company's bargaining power as a supplier. Mr. Lee explained, "Prudent inventory management and a tight supply-demand environment are favorable for negotiating long-term contracts." He added, "The current shortage of DRAM relative to demand may also be favorable for the expansion of the HBM business in 2027." The company's process upgrade roadmap is also consistent with previous expectations. Lee stated, "The 1c nanometer process will be mainly applied to DRAM from 2026, and will be fully applied to HBM from 2027." He also pointed out, "The capital expenditure focus on DRAM and HBM is consistent with previous expectations." Key Takeaways from the meeting 1. Driven by actual demand and tight supply conditions, memory prices may continue to rise throughout the year. Hynix believes that the current trend of rising memory prices may continue throughout the year driven by strong demand from AI customers. The company expects that with AI clients making substantial progress in AI services, they will continue to make significant investments. While the company acknowledges that potential "despeccing" by PC and mobile customers could put pressure on memory demand, they still expect prices to continue to rise due to limited supply growth. The company mentioned that the limited clean room space in the industry is one of the reasons leading to supply constraints and a favorable memory price environment. The company believes that there is a low possibility of substantial double-booking of memory orders, as customers realize that increasing memory capacity significantly in the short term is not feasible, and therefore, they understand that double-booking will not bring additional quotas, but rather further raise prices. 2. Healthy inventory levels and enhanced supplier bargaining power are driving discussions on long-term contracts. Hynix emphasizes that no customer this year has been able to fully meet its memory needs, so the demand fulfillment rate for all end markets remains relatively low. As a result, Hynix believes that the inventory levels of server customers are reaching a healthy state, while the inventory levels of PC/mobile customers are declining. Considering that supplier inventory is also slim (we believe that Hynix's normal inventory levels of DRAM and NAND are about 4 weeks and are expected to decrease this year), we believe that supplier leverage will continue to strengthen. In this context, the company is discussing multi-year contracts with major customers. Although discussions have made some progress, Hynix remains cautious overall, attempting to maximize future demand stability. 3. The current tight supply conditions for traditional DRAM could bring more favorable terms for HBM business in 2027. While recognizing the potential upside potential of demand, Hynix mentioned that since this year's HBM has been sold out and production to meet customer demand has been allocated, making substantial changes to production plans between HBM and traditional DRAM in 2026 will be difficult. Although the company may stick to its original capacity allocation plan for 2026, we believe that for 2027, the company's HBM business may have more upside potential, as we believe it will be able to reflect the current significant supply constraints in traditional DRAM. 4. The 1c nanometer capacity ramp-up in 2026 mainly targets traditional DRAM, while HBM mainly starts from 2027. Hynix will focus this year on ramping up 1b nm DRAM capacity at its M15X factory, primarily to support the supply of HBM3E and HBM4. Since the company plans to start using the 1c nm process for HBM from HBM4E, the large-scale capacity ramp-up for HBM may be completed in 2027. Meanwhile, as the company expects strong demand for DDR5 and LPDDR5 (including SOCAMM) throughout the year, it may undergo significant technological migration (rather than adding new wafer capacity) to increase its traditional DRAM supply at the 1c nm node, and is expected that by the end of this year, over half of traditional DRAM will adopt the 1c nm node. 5. Capital expenditure guidance and focus on DRAM/HBM investments are broadly consistent with Goldman Sachs forecasts. Although Hynix mentioned that this year's capital expenditure plans are still under discussion, it continues to expect spending to increase compared to last year, while planning to continue adhering to capital expenditure discipline. The company expects that this year's capital expenditure mix for Wafer Fab Equipment (WFE) will not be significantly different from last year. Although the company has resumed some NAND investments, mainly for the transition to 321-layer 3D NAND, it still expects the proportion of NAND capital expenditure to remain stable, as the focus of capital expenditure will continue to be on HBM and traditional DRAM. We believe that the company's view on capital expenditure is broadly aligned with our perspective, as we expect the company's total capital expenditure to increase by 36% year-on-year to 38 trillion Korean won this year, and anticipate that the proportion of NAND will remain in the low double-digit percentage this year, similar to last year. This article is reprinted from the WeChat public account "Semiconductor Industry Observation"; GMTEight Editor: Yan Wencai.