SK Hynix chief warns of worst chip shortage in industry history

Warning from the chief executive's office

However, the focus of the media event was less on the share prices and more on management's warnings. Kwak Noh-jung, Chief Executive Officer of SK Hynix, told Reuters that next year would be the worst year in the industry's history from a supply perspective. "Wir gehen davon aus, dass das nächste Jahr aus Sicht der Versorgungslage das schlimmste Jahr in der Geschichte der Branche sein wird", he said on the sidelines of the IPO. Speaking to Bloomberg in New York on Friday, he also stressed that the focus was on generating more revenue to further support the share price. The crisis in memory chips has not yet reached its peak, Kwak forecast.

SK Hynix is one of the leading developers of HBM chips (High Bandwidth Memory), which are supplied to Nvidia, among others, and are used in accelerators for artificial intelligence. The rapidly growing demand for AI hardware is hitting an industry that only a few years ago went through a severe overproduction crisis. Samsung, SK Hynix and US manufacturer Micron drastically cut production and reduced investments in new plants during this phase. DRAM prices are now rising again because manufacturers are reducing the share of classic DDR and LPDDR memory in favor of HBM and server variants. According to industry reports, the technological transition from DDR4 to DDR5 is complex and requires more modern lithography equipment, which is further shrinking the already tight DDR4 capacity.

Billions in investments to combat the bottleneck

SK Hynix announced it would invest around ten billion US dollars in the establishment of an AI solutions company in the USA. A chip packaging factory is also being built in the US state of Indiana for approximately four billion dollars. The company's main sites remain Icheon and Cheongju in South Korea; another major complex is currently under construction in Yongin. Possible additional production sites in the USA, Japan and Southeast Asia are under discussion, as Kwak explained – but no decision has yet been made. Sites are evaluated based on a combination of space, electricity, water and qualified personnel at competitive production costs.

Given the expected long-term shortage, the South Korean government plans to work with SK Hynix and Samsung Electronics to double domestic memory chip production capacity within five years. Overall, the plans envisage investments of 800 trillion won (around 455 billion euros) in new factories, including 400 trillion won ($266 billion) in chip production facilities in the southwest of the country. SK Hynix and Samsung had presented these plans together with South Korean President Lee Jae Myung the previous month. Micron is also expanding existing capacities, according to the company.

New supply chains and Chinese competition

Chey Tae-won, the former CEO and major shareholder of SK Group, described the IPO in the United States as a milestone. SK Hynix raised a total of $26.5 billion through the ADR issue, surpassing the Alibaba Group's US IPO. It was the largest IPO ever conducted by a foreign company on a US stock exchange. Chey did not rule out further ADR issues in the US should market conditions develop accordingly.

In parallel to the DRAM and HBM shortage, supply chains are also shifting. According to reports, Apple plans to restructure its semiconductor supply chain and intends to involve Chinese manufacturer ChangXin Memory Technologies (CXMT), which says it now produces competitive DDR5 chips. However, CXMT is on a US government blacklist, which complicates the plans politically. If Apple were indeed to purchase from CXMT, it would be a further sign that the global memory industry is realigning itself – away from a pure concentration on the three major manufacturers Samsung, SK Hynix and Micron.

Market observers see the combination of a record IPO and supply warning as evidence of a new phase in the chip cycle. After years of throttling, the industry is responding with billions in investments, but demand – driven by AI applications, cloud data centers and high-performance computers – is growing faster than production capacities can be ramped up. Kwak summed up this discrepancy in a simple formula: "Wir gehen weiterhin davon aus, dass die Kundennachfrage auch über das Jahr 2030 hinaus unsere Lieferkapazität übersteigen wird. Wir tun jedoch unser Bestes, um dieses Problem zu lösen."