The Winner’s Curse… SK Hynix gave Japan the title of world No. 2 A look at Hwang Jeong-soo’s semiconductor affairs

M16 in Icheon, Gyeonggi, SK hynix’s newest factory. random news

SK Hynix handed back the world’s second position (based on market share) in NAND flash to Japan’s Kiosia. SK Hynix’s (together with Solidigm subsidiaries) market share in the third quarter fell from 19.9% ​​in the second quarter to 18.5%. Kiosia Japan increased from 15.6% in the second quarter to 20.6% in the third quarter.

Looking at sales, SK Hynix’s sales in the third quarter were $2.539 billion, down 29.8% from the second quarter, while Kiosia’s sales ($2.8299 million) fell by only 0.1% over the same period.

Suspension of Kiosia work in Japan to return to normal in the third quarter

What is the reason for the dramatic difference in sales and market share between the two companies? SK Hynix was fully affected by the sluggish smartphone, PC and corporate server markets. As information technology (IT) products containing NAND flash did not sell well, demand fell, and SK Hynix’s sales plunged.

Kiosia’s performance is largely influenced by the negative effects of plant closures at the beginning of the year. At the end of January, Kiosia stopped producing NAND flash at its plants in the Mie and Iwate assumptions. This is the effect of contamination of the production line due to raw materials containing impurities.

The winner's curse?  SK Hynix relinquished the title of 'World No. 2' to Japan [황정수의 반도체 이슈 짚어보기]

When a semiconductor factory stops, it has a negative impact for more than three months. This is because when contamination occurs, most of the semiconductors made on the line must be discarded, and even if the line is operated again, it takes up to three months from input of raw materials to production.

The factory closure had a negative impact on Kiosia’s Q2 results. Kiosia’s Q2 sales fell 16.3% QoQ. SK Hynix’s second quarter sales increased by 12.1%. It is analyzed that the order was moved to SK Hynix, a competitor, as Kiosia was unable to supply NAND flash products smoothly.

Kiosia production normalized in the third quarter. Customers who had temporarily left returned, and despite the fall in the third quarter, Kiosia managed to record similar sales to the second quarter. That is why Kiosia seems to have performed relatively well.

Solidigm hoped for a surplus, but the deficit grew

Can SK Hynix regain the No. 2 position? In the market, ‘synergy’ with Solidigm, a subsidiary specializing in SSD (solid state drive), is evaluated as important.

SK Hynix was originally the fifth largest NAND flash manufacturer in the world with a market share of around 10%. In October 2020, it signed a contract to acquire Intel’s entire NAND flash business for a price of 10.3 trillion won based on the exchange rate at the time. The purpose was to increase the combined market share to the 20% level and jump to second place in the world, while at the same time strengthening the competitiveness of SSD, which has emerged as a key NAND flash product. Although SK Hynix is ​​strong in NAND flash single product competitiveness, Intel’s main product is SSD made using NAND flash.

The first phase of the acquisition was completed at the end of 2021. It named Intel’s NAND flash division as ‘Solidigm’ and made it a 100% subsidiary. Solidigm is a combination of Solid State Drive and Paradigm.

Solidigm 3D NAND SSD

Solidigm 3D NAND SSD

Up until this point, SK Hynix was only confident. In 2022, Solidigm expected to record a surplus, excluding one-off costs. However, as the NAND flash market rapidly declined in the second half of the year, Solidigm appears to be sinking into the quagmire.

Solidigm Executive Resigns… Leadership Crisis

The loss of Solidigm had a direct impact on SK Hynix’s NAND flash business turning into a ‘loss’. SK hynix NAND Product Solutions Corp, including Solidigm, posted a net loss of 613.3 billion won in the third quarter. This year, the cumulative net loss reached 871.7 billion won.

Noh Jong-won, business president of SK Hynix, said at the third quarter performance briefing held last October, “The current market situation has become very bad compared to the forecast at the beginning of the year. Solidigm’s performance also declines.”

The acquisition of SK Hynix also had the effect of having difficulty responding to the market as the business division became independent as a separate corporation. President Noh explained, “It is true that in the process of changing from being a division of Intel to an independent company, it is difficult to actively respond to rapid changes in the market.”

Recently, Solidigm’s leadership has also been assessed as faltering. Solidigm’s first CEO, Robert Crook, resigned last month. Seok-Hee Lee, former CEO of SK Hynix, who served as chairman of Solidigm’s board of directors, resigned as a technology expert.

SK Hynix’s 4Q conversion forecast

Concerns about SK Hynix grow as the NAND flash collapse overlaps with Solidigm’s crash landing. In the securities industry, there are also negative forecasts that it will turn into a loss in the fourth quarter of this year and continue to lose money next year. According to FnGuide, a financial information company, SK Hynix’s fourth quarter operating profit consensus (an average of securities firm forecasts) is ‘a loss of 173 billion won’. The projected operating loss for the first quarter of next year is 843.2 billion won.

At the end of the third quarter, SK Hynix’s cash equivalent was 5 trillion won. Although SK Hynix announced that it will reduce capital expenditure investment (CAPEX) by more than 50% next year compared to this year, it is estimated that the amount required for daily investment in facilities will be around 10 trillion win There is still a deadline until the deadline (February 2025), but the balance of the acquisition of Solidigm (2 billion dollars, about 2.67 trillion won) is still to be paid to Intel. It is analyzed that SK Hynix needs to raise funds by issuing corporate bonds in the market.

In the securities industry, there was even a rumor that ‘SK Hynix tried to issue corporate bonds and failed’. An industry insider said, “Given the recent surge in financing rates, it will be a burden for SK Hynix.”

solidigm building

solidigm building

The key is when the NAND flash industry will turn around. The market expects that the memory semiconductor market, including NAND flash, will only be able to rebound in the second half of next year. Whether or not synergies with Solidigm can really be created is also a concern.

SK hynix sent a positive message to the market. President Noh said, “If the integration (Solidim) is completed within the next year or two, we expect that the strategic advantages of SK Hynix in the future competitive landscape will far outweigh the current difficulties.” We will also focus on creating business synergies through , to respond to the upcoming market downturn.”

Correspondent Hwang Jeong-soo [email protected]

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