Despite the surging demand driven by artificial intelligence, South Korea's two major memory chip giants, Samsung Electronics and SK Hynix, will continue to cut NAND flash production this year. This supply strategy is expected to keep NAND prices rising across various sectors such as servers, PCs, and mobile devices, bringing profit margin improvements comparable to those of DRAM for the two companies.
On Tuesday, according to a report by the Korean newspaper Chosun Ilbo citing data from market research firm Omdia, Samsung Electronics' NAND wafer production this year will drop from 4.9 million units last year to 4.68 million units, even below the level of production cuts implemented in 2024 due to deteriorating profitability. SK Hynix's NAND production will also decrease from about 1.9 million units last year to 1.7 million units this year. Together, the two companies account for more than 60% of the global NAND flash market.
This production cut decision comes amid intensified competition in inference AI led by companies like NVIDIA. According to Citigroup data, the next-generation AI accelerator "Vera Rubin" that NVIDIA plans to mass-produce in the second half of this year has an SSD capacity of 1,152TB, more than ten times that of the current "Blackwell." The product is expected to ship 30,000 units this year and 100,000 units next year, creating additional demand of 34.6 billion TB and 115.2 billion TB in 2026 and 2027 respectively.
Notably, the global storage chip super cycle driven by the AI boom has turned into historic profits, with Samsung Electronics and SK Hynix offering the largest performance bonuses in years. Samsung Electronics' Device Solutions division of the semiconductor department has confirmed that eligible employees will receive a bonus equivalent to 47% of their base annual salary this month. SK Hynix's dividend and bonus policy is even more aggressive, with average bonuses expected to exceed 140 million won, setting a new record high.
Capital Expenditure Shifts to High-Profit DRAM
It is widely believed that Samsung Electronics and SK Hynix's reduction in NAND production reflects a shift in capital expenditure priorities toward the most profitable DRAM.
Additionally, as demand for high-capacity SSDs in AI data centers grows, there will inevitably be natural production losses during the transition from existing three-level cell technology to four-level cell technology, which is more suitable for AI data centers. This transition involves multiple factors, including equipment installation, stabilization periods, and initial production yields.
According to reports, Samsung Electronics and SK Hynix executives believe there is no reason to rush to increase NAND production. A semiconductor industry insider said it is still unclear whether Samsung Electronics and SK Hynix's NAND production cuts are intentional or a natural result, but regardless, the benefits of the production cuts will reach their peak this year.
Comprehensive Price Increases Expected
Main market research institutions expect NAND prices to rise comprehensively starting from the first quarter of this year, and they are closely monitoring supply adjustments by key suppliers.
TrendForce expects the contract price of NAND flash memory to increase by 33% to 38% compared to the previous quarter in the first quarter, noting that companies such as Samsung Electronics and SK Hynix are maintaining a conservative stance on NAND production. IDC also predicts that the growth rate of NAND supply this year will be around 17%, lower than the average in recent years.
Analysts say that given the surge in demand for NAND in the AI-driven market this year, the supply control by major suppliers Samsung Electronics and SK Hynix may deepen shortages in areas such as AI servers, as well as mobile devices and PCs. For NAND business, the two companies have long suffered from declining profitability and had to focus on price defense. Now, they can take full advantage of this storage chip super cycle to maximize profits.
Samsung and SK Hynix Award Record Bonuses
Samsung Electronics and SK Hynix are offering the largest performance bonuses in years, marking that the global storage chip super cycle driven by the AI boom has turned into historic profits. The generous bonuses from these two South Korean chip giants directly reflect the significant improvement in profitability due to the sharp increase in demand for AI chips such as high-bandwidth memory (HBM).
Samsung Electronics' Device Solutions division of the semiconductor department has confirmed that eligible employees will receive a bonus equivalent to 47% of their base annual salary this month. This proportion is close to the internal 50% limit at Samsung, forming a stark contrast with the zero bonus rate in the same department in 2023 when the chip market was sluggish, highlighting the strength of the industry recovery.
SK Hynix's dividend policy is even more aggressive, as the company has abolished its long-standing 10-month basic salary cap and instead allocated 10% of its operating profit to this year's profit-sharing plan. Based on an estimated annual operating profit of 4.5 trillion won and 33,000 employees, the average bonus is expected to exceed 140 million won, setting a new record high.
These record-breaking bonus distributions come at a time when both companies are shifting large-scale production capacity to HBM manufacturing. Due to the fact that HBM consumes approximately three times the wafer capacity of standard DRAM, this transformation has caused a shortage of general-purpose memory such as DDR5, driving overall price increases and providing dual profit growth momentum for chip manufacturers.
This article is from Wall Street Journal, welcome to download the app to see more.
Original: toutiao.com/article/7597238357395063330/
Statement: This article represents the views of the author.