SK Hynix has decided to abandon the planned US initial public offering (IPO) of its storage business Solidigm.
Research firm LYNX Equity Strategies noted in an October 23 report that this decision could benefit Micron Technology (NASDAQ: MU) and SanDisk Corp. (NASDAQ: SNDK), because Solidigm's loss of a potential funding channel reduces the likelihood of future NAND flash capacity expansion, helping ease market concerns about long-term oversupply and price declines.
After the news was announced, Micron Technology (NASDAQ: MU) shares rose about 3.6%, while SK Hynix gained about 4.4%.
Abandoning the IPO means losing expansion funding, and future NAND supply pressure is expected to ease
The team led by LYNX Equity Strategies analyst KC Rajkumar said Solidigm had previously planned to raise funds through a US IPO to support the construction of new NAND flash manufacturing capacity in the United States.
If that plan had proceeded smoothly, the new capacity could have entered the market in three years or more, increasing global NAND flash supply and putting pressure on product prices.
With SK Hynix's decision to cancel Solidigm's US listing plan, that potential funding source has disappeared.
LYNX believes the additional capacity plans that might otherwise have been driven by IPO financing now face greater uncertainty, reducing the risk that future NAND market supply growth will outpace demand.
The firm noted that the pressure from potential new global NAND flash supply tied to Solidigm's expansion projects has been alleviated.
For existing manufacturers, this means future competition may be weaker, which is conducive to maintaining industry supply-demand balance and product prices.
However, canceling the IPO does not directly affect current NAND flash output, nor does it mean Solidigm will stop other expansion activities.
Its main impact is on potential capacity growth over the next several years, rather than short-term market supply.
The original plan was to build a US plant with Intel, and canceling the IPO may weaken the Ohio project opportunity
According to LYNX's analysis, Solidigm's previously considered US manufacturing project could have taken the form of a joint venture with Intel, possibly located at Intel's Ohio campus.
For Solidigm, building a US manufacturing base would provide new production capacity and expand its local manufacturing footprint.
LYNX believes a US-based manufacturing project could also enjoy trade conditions different from those of its existing overseas manufacturing facilities, helping future production expansion.
However, with the cancellation of the US IPO plan, the related project has lost a potential large-scale source of funding.
For Intel, this also means its Ohio campus may lose a new manufacturing cooperation opportunity, so LYNX considers the decision slightly negative for Intel.
At present, there is no information indicating that the joint venture manufacturing project has officially launched, and canceling the IPO does not mean all potential cooperation arrangements have been terminated.
Micron and SanDisk are expected to benefit, but the positive impact is mainly in the long-term supply-demand picture
LYNX pointed out that Micron Technology (NASDAQ: MU) and SanDisk Corp. (NASDAQ: SNDK) are both important suppliers in the NAND flash market.
If Solidigm reduces future investment in new capacity, it will help lower the industry's potential supply growth rate, supporting NAND product prices and the valuations of existing manufacturers.
The NAND flash industry is highly cyclical.
When manufacturers expand capacity in a concentrated manner and supply growth exceeds end demand, product prices tend to come under pressure, and corporate profit margins may also be affected.
Conversely, if new capacity is constrained while demand from data centers, enterprise storage and other applications continues to grow, the market supply-demand picture may become more favorable to existing players.
However, LYNX also cautioned that the overall market environment may limit the upside for related stocks, and even though Solidigm's IPO cancellation is positive from a long-term supply perspective, it may not immediately drive Micron Technology (NASDAQ: MU) and SanDisk Corp. (NASDAQ: SNDK) shares sharply higher.
The firm emphasized that the main significance of this event is the removal of a potential future source of competition, and it does not change existing NAND flash supply.
How much Micron Technology (NASDAQ: MU) and SanDisk Corp. (NASDAQ: SNDK) ultimately gain still depends on the capital expenditure plans of other storage manufacturers and changes in global NAND flash market supply and demand over the coming years.
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