Global technology giants are competing to extend investment offers to South Korean memory chip leader SK Hynix, proposing to fund the construction of new production facilities and purchase expensive manufacturing equipment in order to secure future chip supply. This phenomenon is unprecedented in the global memory chip industry, highlighting the severity of the current worldwide chip shortage. Amid the artificial intelligence boom, chip manufacturers are struggling to keep up with surging market demand, as memory chips are core components for AI data centers, smartphones, and PCs.
According to informed sources, SK Hynix's customers have proposed various cooperation plans, including investing in dedicated memory production lines. Another proposal involves customers providing funds for SK Hynix to purchase equipment, such as ASML's extreme ultraviolet lithography machines. These machines, used to etch circuits onto silicon wafers, cost hundreds of millions of dollars per unit. Sources also revealed that some cooperation proposals are targeting the first phase of SK Hynix's large-scale fab in Yongin, South Korea, which will primarily produce DRAM memory chips in the future.
However, sources indicated that SK Hynix is approaching customer investment cautiously due to its sufficient capital reserves. Such deals could potentially bind the company to specific buyers and require it to supply chips at lower prices in exchange for "longer-term, more stable revenue guarantees." One source stated bluntly: "Regardless of what proposals customers make, currently available production capacity is almost zero. Not even a small portion of capacity can be allocated to specific customers."
Boosted by the AI investment wave, SK Hynix, Asia's third-largest company by market value (after TSMC and Samsung), has seen its stock price rise 154% this year, reaching record highs. It remains unclear which specific global technology giants have made investment proposals to SK Hynix. American tech giants including Alphabet, Meta Platforms, Inc., and Microsoft last week announced plans to increase investments in AI infrastructure.
"We are actively investing to meet our infrastructure needs," Meta Platforms, Inc. stated during its earnings call, adding that this includes "reaching agreements throughout the supply chain to secure components for future capacity requirements." Microsoft also indicated during its earnings presentation that it expects capital expenditures to increase to $190 billion this year, including an additional $25 billion due to rising costs of components like chips.
The influx of investment proposals from tech giants to SK Hynix represents a rare scenario in memory chip industry history. The sector has traditionally experienced extreme boom-and-bust cycles. This development is leading chip manufacturers to believe that the current industry upturn may last longer than previous cycles.
Both SK Hynix and Samsung stated last month that the current memory chip supply shortage will persist, as chip manufacturers need time to build capacity to keep up with the "structural growth" of AI demand. "Due to current supply constraints, the company cannot fully meet all customer demands," SK Hynix stated at the time, adding that requests from customers to secure supply through long-term contracts are increasing dramatically.
Memory chip manufacturers have consistently stated that multi-year contracts would help smooth demand fluctuations and reduce investment risks in this capital-intensive, cyclical industry. However, chip executives, investors, and analysts note that questions remain about how to ensure customers don't cancel agreements and how to price contracts profitably.
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