SK Hynix to Cut DRAM Production and Reduce Wafer Start of NAND Flash

SK Hynix will begin to cut DRAM production from Q4 2019 as well as reduce its NAND flash wafer start by 15% as compared to its 2018 output. Last quarter, the company had said it would reduce NAND flash wafer starts by 10%.

The fresh set of announcements come after the company reported an 89% year-on-year (YoY) decline in operating profit in Q2 2019. This was despite a 13% quarter-on-quarter (QoQ) increase in DRAM bit shipments, mainly due to the growing demand from the mobile and PC DRAM markets. However, DRAM prices are still weak. In fact, average selling prices (ASPs) have dropped by 24%. It was a similar story in the NAND flash market where the company’s shipments increased 40%, but ASPs were down 25%.

Exhibit 1: SK Hynix DRAM bit shipment and Blended ASP from 1Q18 to 2Q19

Source: Counterpoint Research – Memory Tracker and Forecast

Usually, both DRAM and NAND flash have the characteristics of a boom-bust cycle. As a result, these two products normally do not reach the bottom at the same time. Therefore, the production capacity is interchangeable to can make up for each other’s losses. However, this time, the situation is very different. Both DRAM and NAND flash are at the bottom of their bust cycle, which is hurting Samsung, SK Hynix, and Micron. It is still unclear how long the threat of the trade war between Japan and South Korea will last. In order to reduce the risk of raw material shortage as well as limited resources for investment, SK Hynix must choose between a cut in spending on DRAM or NAND flash.

Currently, spot prices of both DRAM and NAND flash have rebounded. However, contract pricing has not seen a significant rebound because of high inventory in the channels. Therefore, SK Hynix’s DRAM investment cuts can increase its bargaining power. However, this takes time and has risks since other competitors take this chance to grasp more share from SK Hynix. The two main applications of DRAM are smartphones and servers. The growth of both smartphones shipment and DRAM content will be limited while the server market is still in a downturn. Therefore, we expect that DRAM prices will rise marginally in the short-term but will continue to be weak afterward.

The situation for NAND flash is different. The demand for NAND flash in smartphones is still growing. The average storage size in smartphones in 2020 is expected to reach 72GB, up from 64GB in 2019. The storage size of the flagship smartphone will be at least 128GB in the H2 2019. In addition, the demand for NAND flash in SSDs is also growing. Both PCs and servers require larger and faster NAND flash. The mainstream capacity of SSD in PC is moving to 512GB from 256GB. The average capacity has also risen to 321GB. As the unit price of NAND flash declines, the penetration rate of SSD in both PC and server will also increase significantly. Therefore, we expect to see the penetration of SSDs in PCs continuing to rise and cross the 50% mark this year. The NAND flash market is expected to recover in Q4. Demand will increase as prices decline. As a result, it can help companies like SK Hynix increase the bit growth and improve the utilization rate of their production lines.

In conclusion, it makes sense for SK Hynix to cut DRAM investment. In the case of limited resources in raw material and CAPEX, the bit growth of DRAM will be lower than that of NAND flash. SK Hynix should immediately stop producing 36 and 48 layer products as they are not economically viable. Instead, the company can do better by focussing on improving the yields, increase the capacity of NAND flash, its 96 layer products, and even 128 layer NAND flash. This can increase utilization and effectively reduce costs.

Brady Wang has more than 20 years working experience in high-technology companies from semiconductor manufacturing to market intelligence, and strategy advisory. Brady’s major coverage in Counterpoint is semiconductors. Prior to joining Counterpoint, Brady Wang worked for Gartner for 11 years. He started his career at TSMC as an engineer for 6 years.

Term of Use and Privacy Policy

Counterpoint Technology Market Research Limited


In order to access Counterpoint Technology Market Research Limited (Company or We hereafter) Web sites, you may be asked to complete a registration form. You are required to provide contact information which is used to enhance the user experience and determine whether you are a paid subscriber or not.
Personal Information When you register on we ask you for personal information. We use this information to provide you with the best advice and highest-quality service as well as with offers that we think are relevant to you. We may also contact you regarding a Web site problem or other customer service-related issues. We do not sell, share or rent personal information about you collected on Company Web sites.

How to unsubscribe and Termination

You may request to terminate your account or unsubscribe to any email subscriptions or mailing lists at any time. In accessing and using this Website, User agrees to comply with all applicable laws and agrees not to take any action that would compromise the security or viability of this Website. The Company may terminate User’s access to this Website at any time for any reason. The terms hereunder regarding Accuracy of Information and Third Party Rights shall survive termination.

Website Content and Copyright

This Website is the property of Counterpoint and is protected by international copyright law and conventions. We grant users the right to access and use the Website, so long as such use is for internal information purposes, and User does not alter, copy, disseminate, redistribute or republish any content or feature of this Website. User acknowledges that access to and use of this Website is subject to these TERMS OF USE and any expanded access or use must be approved in writing by the Company.
– Passwords are for user’s individual use
– Passwords may not be shared with others
– Users may not store documents in shared folders.
– Users may not redistribute documents to non-users unless otherwise stated in their contract terms.

Changes or Updates to the Website

The Company reserves the right to change, update or discontinue any aspect of this Website at any time without notice. Your continued use of the Website after any such change constitutes your agreement to these TERMS OF USE, as modified.
Accuracy of Information: While the information contained on this Website has been obtained from sources believed to be reliable, We disclaims all warranties as to the accuracy, completeness or adequacy of such information. User assumes sole responsibility for the use it makes of this Website to achieve his/her intended results.

Third Party Links: This Website may contain links to other third party websites, which are provided as additional resources for the convenience of Users. We do not endorse, sponsor or accept any responsibility for these third party websites, User agrees to direct any concerns relating to these third party websites to the relevant website administrator.

Cookies and Tracking

We may monitor how you use our Web sites. It is used solely for purposes of enabling us to provide you with a personalized Web site experience.
This data may also be used in the aggregate, to identify appropriate product offerings and subscription plans.
Cookies may be set in order to identify you and determine your access privileges. Cookies are simply identifiers. You have the ability to delete cookie files from your hard disk drive.