Despite surging demand driven by artificial intelligence, South Korea's two memory chip giants, Samsung Electronics and SK Hynix, will continue to reduce their NAND flash production output this year. This supply strategy is expected to drive a sustained increase in NAND prices across various sectors, including servers, PCs, and mobile devices, leading to profitability improvements for both companies comparable to those seen in the DRAM segment. On Tuesday, citing data from market research firm Omdia, it was reported that Samsung Electronics' NAND wafer output this year will decrease to 4.68 million units from 4.9 million units last year, falling even below the reduced levels implemented in 2024 due to deteriorating profitability. SK Hynix's NAND production will also drop to approximately 1.7 million units this year from around 1.9 million units last year. Combined, the two companies hold over 60% of the global NAND flash market share. This decision to cut production comes at a time when competition in inference AI, led by companies like Nvidia, is intensifying. According to Citigroup data, Nvidia's next-generation AI accelerator, "Vera Rubin," scheduled for mass production in the second half of this year, will feature a solid-state drive capacity of 1,152 TB, more than ten times that of the current "Blackwell" model. With an expected shipment volume of 30,000 units this year, projected to reach 100,000 units next year, this product is anticipated to generate new demand for 34.6 million TB in 2026 and 115.2 million TB in 2027. It is noteworthy that the global memory chip super-cycle, fueled by the AI boom, has translated into historic profits, prompting Samsung Electronics and SK Hynix to distribute their largest performance bonuses in years. Samsung Electronics' semiconductor division, Device Solutions, has confirmed that eligible employees will receive a bonus this month equivalent to 47% of their base annual salary. SK Hynix's profit-sharing and bonus approach is even more aggressive, with the average bonus expected to exceed 140 million Korean won, setting a new record high. The industry widely believes that the production cuts for NAND by Samsung Electronics and SK Hynix reflect a shift in capital expenditure priorities towards DRAM, which offers the highest profitability. Furthermore, as AI data centers drive demand for high-capacity SSDs, the transition from the current triple-level cell technology to the more suitable quad-level cell technology for AI data centers will inevitably lead to natural yield losses. This conversion involves multiple factors, including equipment installation, stabilization periods, and initial production yields. Reportedly, executives at Samsung Electronics and SK Hynix see no reason to rush to increase NAND production. An industry insider noted that it remains unclear whether the NAND output reduction by the two companies is intentional or a natural outcome; regardless, the benefits from the production cuts are expected to be maximized this year. Major market research firms anticipate a comprehensive rise in NAND prices starting from the first quarter of this year and are closely monitoring supply adjustments by key suppliers. TrendForce forecasts that first-quarter NAND flash contract prices will increase by 33% to 38% compared to the previous quarter, noting that companies like Samsung Electronics and SK Hynix are maintaining a conservative stance on NAND production. IDC also predicts that the NAND supply growth rate this year will be around 17%, lower than the average level seen in recent years. Analysts suggest that given the AI-driven surge in NAND market demand this year, supply control by major suppliers Samsung Electronics and SK Hynix could exacerbate shortages across various sectors, including AI servers, mobile devices, and PCs. For their NAND businesses, which have long suffered from poor profitability, forcing a focus on price defense, the companies can now leverage this memory chip super-cycle to maximize profits as much as possible. Samsung Electronics and SK Hynix are distributing record-breaking performance bonuses, marking how the global memory chip super-cycle, driven by the AI boom, has been converted into historic profits. The substantial profit-sharing by these two South Korean chip giants directly reflects a significant improvement in profitability driven by surging demand for AI chips, including high-bandwidth memory. Samsung Electronics' semiconductor division, Device Solutions, has confirmed that eligible employees will receive a bonus this month equivalent to 47% of their base annual salary. This ratio is close to Samsung's internal cap of 50%, starkly contrasting with 2023 when the division paid zero bonuses due to a chip market downturn, highlighting the strength of the industry's recovery. SK Hynix's profit-sharing is even more aggressive, as the company has abolished its long-standing cap of 10 months' base salary, replacing it with a plan to allocate 10% of this year's operating profit to its profit-sharing scheme. Based on an estimated annual operating profit of 45 trillion won and 33,000 employees, the average bonus is expected to exceed 140 million won, reaching a historic high. These record bonus payments coincide with both companies shifting their production capacity on a large scale towards HBM production. As HBM production consumes approximately three times the wafer capacity of standard DRAM, this transition has led to tight supplies of general-purpose memory like DDR5, driving up overall prices and creating a dual profit growth engine for the chipmakers.
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