After achieving record-breaking revenue from its high-bandwidth memory (HBM) business, SK Hynix is now planning to re-prioritize the manufacturing of mainstream DRAM products like DDR5.
In recent months, surging demand from artificial intelligence companies has made HBM the primary profit driver for the three major DRAM manufacturers. This trend has delivered unprecedented earnings for Samsung, Micron, and SK Hynix. Consequently, these firms had reduced their emphasis on producing general-purpose DRAM solutions, including DDR5. However, having now secured a strong position in the HBM market, they intend to return their attention to the mainstream DRAM segment.
A recent report indicates that HBM now constitutes approximately 40% of SK Hynix's total revenue. This substantial contribution has prompted the company to recalibrate its plans for expanding production of its 6th-generation HBM, known as HBM4. HBM4 is poised to become a crucial component for AI chips, with SK Hynix positioned as the primary supplier for NVIDIA's upcoming Rubin platform.
The company is reallocating resources to capture additional profits in the general-purpose DRAM market, where supply shortages are acute, rather than engaging in aggressive competition to expand HBM capacity.
Nevertheless, SK Hynix is reportedly postponing the conversion of its HBM3E production lines to HBM4. This decision stems from an industry assessment that there is no immediate need to accelerate the transition to HBM4 and its enhanced variant, HBM4E. Current market revenue and existing capacity are deemed sufficient to meet the anticipated HBM demand for the Rubin platform.
Meanwhile, SK Hynix's chief rival, Samsung, is generating significant profits from the general-purpose DRAM market. SK Hynix aims to claim a share of these earnings, leading to an anticipated industry shift from HBM back to mainstream DRAM, encompassing DDR5 and LPDDR5X memory.
Industry sources report that SK Hynix is delaying the conversion of certain HBM3E production lines originally slated for HBM4. The strategy is to enhance responsiveness to the general-purpose DRAM market, which currently offers higher operating profit margins than HBM. This move is based on the view that the company's established HBM market position eliminates the need for a rushed transition to next-generation HBM products.
The general-purpose DRAM segment has been experiencing severe supply shortages, more acute than those in the HBM market. This situation arose precisely because manufacturers shifted their focus toward HBM and other AI-centric memory solutions. Now that HBM profits have peaked, companies are looking to return to general-purpose DRAM. While this shift is unlikely to lower DDR5 prices significantly, it should improve memory availability for original equipment manufacturers, original design manufacturers, and server markets.
SK Hynix has previously reported that the average selling price for DRAM has surged over 60%. A recent supply contract with Microsoft for DDR5 further underscores a long-term strategic focus on mainstream DRAM solutions. Even with this pivot, SK Hynix is expected to maintain a robust market share in HBM. Profit margins for general-purpose DRAM are forecast to potentially double by the end of this year.
A resurgence in DDR5 production is not expected to cause a major market upheaval. It may have short-term effects, but once HBM demand rebounds, manufacturers will likely redirect their focus back to the more lucrative segments of the DRAM industry. These vendors have established a cyclical production strategy, shifting resources to wherever the highest profits can be achieved.
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