SK Hynix Throttles HBM4 Production… Seeks Additional Profit by Expanding Supply Constrained Commodity DRAM

SK Hynix is moderating the pace of its sixth generation high bandwidth memory (HBM4) ramp and placing greater weight on capturing the commodity DRAM market. With its HBM revenue share already exceeding 40 percent and an overwhelming lead established, the company is reallocating resources toward securing additional profit from commodity DRAM, where supply shortages are acute, rather than engaging in an aggressive capacity expansion race.
According to industry sources on the 23rd, SK Hynix is reportedly delaying somewhat the conversion of some fifth generation HBM (HBM3E) production lines that were originally slated to switch to HBM4. The aim is to expand its ability to respond to the commodity DRAM market, which currently posts higher operating margins than HBM, in order to secure additional profit. The industry view is that, having already established a solid position in the HBM market, the company sees no need to rush its transition to HBM4 and HBM4E (seventh generation HBM).
Behind this strategic shift lies a reversal in profitability between commodity DRAM and HBM. As of the first quarter of this year, the per gigabit (Gb) price of commodity DRAM still falls short of HBM, but the operating margin gap is estimated to have already widened to more than 15 percentage points (P). Daishin Securities forecasts that commodity DRAM operating margins could rise to a theoretical maximum of 90 percent within the year.
A source familiar with SK Hynix said, "From the standpoint of SK Hynix management, they cannot ignore the fact that a competitor (Samsung Electronics) is already earning enormous profits from commodity DRAM rather than HBM." The source added, "SK Hynix's HBM4 is still undergoing NVIDIA's quality certification process, and production forecasts for NVIDIA's next generation chip 'Rubin,' which will carry HBM4, are trending downward, so there is no reason to accelerate the HBM transition."
The view from overseas investment banks (IB) also supports this trend. Goldman Sachs assessed that it would be sufficient for SK Hynix to maintain a dominant position of more than 50 percent in HBM3 (fourth generation HBM) and HBM3E (fifth generation HBM) at least through 2026. Morgan Stanley pointed to memory wide pricing cycles, rather than a defense of HBM share, as the key driver of SK Hynix's value, and raised its earnings estimates by 56 to 63 percent on the basis of a forecast that DRAM average selling prices will rise 62 percent in 2026.
Indeed, in its first quarter earnings release SK Hynix stated that DRAM average selling prices (ASP) rose in the mid 60 percent range, and it presented a plan to focus on meeting demand for high density server modules and mobile products. Its signing of a three year DDR5 supply agreement with Microsoft (MS) is also interpreted as a move to secure long term earnings visibility in commodity DRAM.
On the other hand, as SK Hynix moves to adjust HBM4 volumes, the possibility of a share gain by its competitor Samsung Electronics is also growing. According to Counterpoint Research, SK Hynix's HBM market share stood at 57 percent in the fourth quarter of last year but is increasingly seen as likely to shrink, and some observers suggest that if Samsung Electronics succeeds in mass producing HBM4 in the second half of this year, SK Hynix's share could fall to the 50 to 60 percent range.