Following a two-day annual strategy meeting, SK Hynix has announced plans to invest a hefty KRW$103 trillion (USD$74.6 billion) in its chip business for the next 3 years. SK Group, the parent company of SK Hynix, is committed to seeing its semiconductor and memory-making cash cow return to profitability after steep losses in 2023.
According to reports from Bloomberg, SK Hynix will allocate around 80% of the robust investment to bolster its High Bandwidth Memory (HBM) product line, directly optimized for Nvidia's AI accelerators. Catering specifications for Nvidia AI compute will allow SK Hynix to slipstream the exponential demand for AI, a train that SK Group does not want to miss.
Investment allocation and forecasted ROI
According to SK Group chairman Tae-won Chey, a decisive execution of foundational changes is necessary for continued success in this industry, one that is now evolving faster than ever.
As part of its commitment to remain competitive in the AI industry, SK Group is reportedly investing an additional KRW$80 trillion (USD$58 billion) in AI technologies such as data centers and AI services, streamlining its myriad of subsidiary businesses. In particular, SK Telecom and SK Broadband plan to allocate KRW$3.4 trillion KRW (USD$2.46 billion) to expand their data center operations.
SK Group has unveiled plans for significant operational improvements. According to Reuters, the conglomerate intends to streamline its structure by reducing redundant investments and consolidating its subsidiaries. Specifically, SK Group aims to decrease its current count of 219 subsidiaries to what it describes as a "manageable range.
Despite a KRW$10 trillion loss last year, the group projects a KRW$22 trillion pretax profit for this year, escalating to KRW$40 trillion by 2026. These goals include accumulating KRW$30 trillion in free cash flow over the next three years.
SK Hynix and its competitors in the current HBM market
SK Hynix suffered its first loss in a decade of nearly KRW$4.1 trillion (USD$3 billion) in fiscal 2022, due to decreased consumer spending amid a global economic slowdown, leading to excessive inventory of memory chips, and increased competition, among other causes.
According to AnandTech, SK Hynix still maintains a dominant position in the HBM market, holding nearly 50% market share. Although Samsung has been SK Hynix's largest competitor in this space, this investment plan is set to boost SK Hynix further ahead in the AI memory arms race. Micron has captured 4-6% of the HBM market, however, lags on production capacity.
The company's substantial commitment, investing USD$58 billion solely in its HBM business, underscores its strategic focus. Scheduled mass production of its 6th generation HBM, HBM4, by 2026 further solidifies SK Hynix's role as a key player in the AI memory supply chain, ensuring continued competitiveness.
Earlier this year, SK Hynix unveiled its inaugural PCIe 5.0 solid-state drive tailored for AI applications. Additionally, the company is developing a 300-terabyte SSD intended to manage both data center operations and on-device AI tasks.
With the growth of AI driving a seemingly insatiable demand for AI-capable memory, over 50% of the current HBM3/HBM3E supply has reportedly sold out with backlogged orders for 2025. Although this reflects SK Hynix's popular demand for their HBM products, it represents an opportunity for others to supply and fight for market share.
