Memory shortage to end in 2028? Samsung and SK Hynix are cautious with capital expenditures

The global storage industry is in a super cycle driven by exploding demand for artificial intelligence. However, over time, major storage manufacturers like Samsung Electronics and SK Hynix are reassessing market supply and demand balance and adopting more cautious expansion strategies.

Reports indicate that Samsung expects memory shortages to end by 2028, meaning the company needs to adjust capacity plans based on demand forecasts to avoid overexpansion. SK Hynix has also stated that they will remain cautious in expanding capacity.

Concerns that demand for general-purpose memory (DRAM) may soon decline are widespread in the industry, leading these manufacturers to become increasingly cautious about plans to expand production facilities.

However, given the current strong demand from customers for HBM and DRAM capacity, suppliers are unlikely to alter their existing expansion plans, as not increasing production lines makes it difficult to meet current market needs. But once demand slows or stabilizes, memory suppliers will need to immediately adjust their production levels, and any excessive capacity commitments could cause problems for them.

Cannot and Unwilling

The industry generally believes that the only way to solve the memory shortage is for suppliers to increase capacity. However, due to their cautious approach to expansion, it is difficult to predict when memory prices will return to normal. Some reports also suggest that the rising trend in DRAM and consumer product prices will become the new normal.

Clark Tseng, Senior Market Intelligence Director at SEMI, the global semiconductor industry association, said that the global DRAM capacity growth rate is only about 4.8% annually until 2030, while by 2028, the four major cloud service providers’ annual spending on AI infrastructure is expected to grow at about 38%.

Building a semiconductor wafer fab typically takes about three years. Even converting existing production lines to new chip designs within current factories takes months, plus waiting for yield stabilization. The imbalance between supply and demand will continue to push up memory prices.

Reports indicate that Samsung Electronics raised its contract prices for DRAM by double in the first quarter alone. Although the rising prices have resulted in strong performance for Samsung and SK Hynix, Korean suppliers are especially cautious about the risk of demand weakness, as lessons from the post-COVID oversupply crisis are still fresh.

In the quarters following the pandemic, due to weak demand for new PC products, memory chip capacity was oversupplied, and Samsung Semiconductor and SK Hynix together lost 22 trillion Korean won (about $147 billion), severely impacting their profit margins.

This article is reprinted from Cailian Press; edited by Zhitong Finance: Chen Xiaoyi.