SK Hynix Customers Offer to Fund Factories. Memory Shortage Further Intensifies. Current Available Capacity Is "Almost Zero".

TradingKey - According to a Reuters report on May 8, major tech giants are racing to secure memory chip supplies, with some companies offering to fund new production lines for SK Hynix or even purchase expensive lithography tools for the manufacturer. This news suggests that global memory supply constraints may be intensifying.

Customers Propose Funding SK Hynix Capacity Expansion

Sources cited by Reuters revealed that a customer of SK Hynix has proposed a plan to invest in production lines, hoping the chipmaker will build a dedicated memory chip production facility for them. Another proposal is for the customer to fund the purchase of Extreme Ultraviolet (EUV) lithography machines made by ASML, which can cost hundreds of millions of dollars each.

Sources indicated that one of the proposals targets the first phase of a massive chip manufacturing plant SK Hynix is building in the Yongin industrial cluster in South Korea, which is expected to primarily produce DRAM (Dynamic Random Access Memory).

However, people familiar with the matter stated that SK Hynix is cautious about such proposals because accepting funding could leave it beholden to specific customers, potentially forcing it to lower chip prices in exchange for longer-term, more stable orders. Furthermore, SK Hynix currently has sufficient capital and does not need to compromise for this.

Previously, both Samsung Electronics and SK Hynix moved away from their long-standing short-term supply contract models, instead requiring customers to sign long-term supply agreements (LTAs) of three to five years, primarily to offset the cyclical volatility of the memory industry.

While long-term orders are crucial for the memory industry, accepting customer funding for plant construction is a different matter. Analysts point out that this could reduce SK Hynix to a foundry for its customers, leading to a loss of bargaining power. With memory prices currently on the rise, SK Hynix finds it difficult to accept the loss of seller pricing power.

Other sources stated that chip suppliers are very cautious when allocating scarce capacity to avoid regulatory scrutiny or perceptions of favoritism toward specific customers; they also do not want to pick sides in the AI race and risk backing the wrong horse.

It remains unclear which tech giants are making investment offers to SK Hynix. The company stated it is currently evaluating various methods and structural alternatives that differ from traditional long-term agreements.

Memory Industry Enters Long-Term Prosperity; Persistent Supply Shortages Likely

According to sources cited by Reuters, regardless of the proposal, current available capacity is nearly zero and cannot be allocated to specific customers.

This is not an issue unique to SK Hynix. Micron (MU) Technology's Senior Vice President and General Manager of the Data Center Business Unit, Jeremy Werner, stated that production capacity in the memory industry is currently unable to keep up with demand; this is true not only for Micron, but also for Intel (INTC) , Nvidia (NVDA) , TSMC (TSM) are also operating at full capacity.

Werner noted that beyond the current capacity shortage, the memory industry's current boom is fundamentally different from past cyclical fluctuations, and supply constraints may persist for a long time. He identified three factors driving the explosion in KV cache demand: increasingly long context windows, larger model parameter counts, and a growing user base, with context length currently growing at a rate of 30 times per year. Since KV cache growth directly consumes HBM capacity, future growth in memory demand is foreseeable.

With semiconductor demand growing, SK Hynix's share price has recently hit repeated record highs, surpassing 1.6 million won, and South Korea's Mirae Asset Securities has raised its target price from 2 million won to 2.7 million won.