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Korean memory manufacturers doubling down capital investment in the midst of a down market

Monday, January 7, 2019

South Korea is a global semiconductor powerhouse, with semiconductor output recording an increasing ratio of its total annual exports, surging from 12.6% in 2016 to 17.1% in 2017, and further to 21.2% in the first 11 months of 2018. The significant growth momentum has largely resulted from constant heavy investments by major players Samsung Electronics and SK Hynix in memory solutions development, technology upgrades and capacity expansions, as well as in foundry and even packaging process advancement.

Samsung has rolled out the world's first 10nm 8Gb LPDDR 5 DRAM, which boasts a data rate of up to 6,400 Mb/s, 1.5 times faster than LPDDR 4X DRAM and consuming 30% less power. The new LPDDR5 is especially suitable for use in 5G and AI devices.

In its latest major investment project, Samsung is building its second semiconductor plant in Pyeongtaek at a total cost of US$27.7 billion to make 3D NAND flash and DRAM, with investment and production scales double those of its first plant in the Korean city. After completion by mid-2019 with official run slated for the second half of the year, the new plant will have monthly capacity of 130,000 wafers for DRAM alone.

Samsung capacity expansions

The huge investment project will surely bring business opportunities for upstream equipment and materials suppliers, but many are worried that the investment may lead to DRAM oversupply and price declines.

Others also wonder whether the memory industry dominated by DRAM and flash products for over 30 years will experience a major revolution following the emergence of new technologies including MRAM (magnetoresistive random access memory), and whether Samsung's huge investment will eventually become a heavy financial burden for the Korean giant.

Over the past few years, Taiwan's foundry giant TSMC has also devoted substantial resources to developing advanced packaging technologies including integrated fan-out wafer level packaging (InFoWLP) and CoWoS. As a result, TSMC has outperformed Samsung Electronics in foundry orders from big clients. Since first using its in-house developed FOWLP technology to process iPhone application processors in 2016, TSMC has landed all iPhone AP orders through 2020.

Samsung, however, decided in 2015 to develop FO-PLP (panel level package) process to sidestep competition with TSMC in the FOWLP segment. The company has started to use FO-PLP technology to package APs for its own Galaxy Watch since June 2018.

At the 2018 International Wafer Level Packaging Conference held October 23-25 in California, TSMC claimed that its FOWLP technology offers great growth potential for AI chips packaging. Also, Samsung highlighted its FO-PLP as a crucial technology for packaging 5G antennas and sensors and for SiP application, as well as for packaging GDDR 6 DRAM and LPDDR 5 Mobile DRAM in the future. Apparently, the two semiconductor giants have extended their competition into packaging beyond foundry services.

Hynix's mega investment On December 18, 2018, South Korea's Ministry of Trade, Industry and Energy announced that it will join forces with SK Hynix to build an integrated high value-added semiconductor complex in the country to cluster entire semiconductor design, materials, equipment, fabrication and packaging industrial chains, at a total investment of US$107 billion in the next 10 years.

Just one day later, SK Hynix held a groundbreaking ceremony for the construction of its M16 plant in Icheon, which will cost US$3.12 billion and cover a land area of 53,000 square meters. The new plant is slated for completion in October 2020 to turn out advanced DRAM chips based on extreme ultraviolet lithography. In early October 2018, the firm's US$13.5 billion M15 fab was inaugurated for dedicated production of 96-layer 3D NAND flash memory chips.

After M16 is completed, SK Hynix will have seven memory chip plants, including six in South Korea and one in China, with DRAM and NAND flash chips being key pillars of the firm's product portfolios.

Market research firms estimate DRAM and NAND flash prices to drop 20% and 30%, respectively, in 2019, but some other industry observers have pointed out that for memory suppliers, 2019 will remain a prosperous year, given strong demand from datacenters for server-use memory chips and suppliers being only Samsung, SK Hynix and Micron.

Memory oversupply may occur only after technological breakthroughs are achieved for the production of second-generation 10nm DRAM and 5th-generation 3D NAND flash memory chips. The global DRAM market value is estimated to exceed US$100 billion in 2019, compared to US$60 billion for NAND flash market, the observers indicated.

By: DocMemory
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