SK Hynix's Wuxi Plant Increases Old Process Production Amid US Restrictions, Impacting Consumer DRAM Prices

SK Hynix's Wuxi plant is facing a setback in importing semiconductor equipment due to US Department of Commerce regulations, which has prevented it from transitioning to mainstream 1Znm technology. This has resulted in a dismal demand for its products and the company has had to increase its production capacity for the older 21nm process, deepening concerns over the supply of consumer DRAM. It is estimated that SK Hynix's production increase will negatively impact consumer DRAM prices and it is unlikely that prices will recover this season, with a potential further drop of 10-15%.

US Department of Commerce had implemented semiconductor restrictions measures on October 7th last year, which requires the approval of the Department of Commerce for the import of equipment with a process of 18nm or below. SK Hynix's Wuxi plant was granted a one-year production license, but due to the increasing geopolitical risks and the continuous pressure on inventory caused by weak demand, it began to reduce production in the first quarter of this year, with a monthly wafer output reduction of about 30%.

The mainstream process at the Wuxi plant is 1Ynm, and the plan was to continue the transition to 1Znm process and reduce production of the older process. However, due to the restrictions imposed by the US ban, SK Hynix decided to increase the proportion of the 21nm production line, which mainly produces DDR3 and DDR4 4Gb products, accounting for less than 30% of SK Hynix's overall consumer DRAM shipments.

As SK Hynix extends its production of the older process, the supply of consumer DRAM with small capacities will gradually increase. Taiwanese supply chains, including Nanya, Winbond, and Powerchip, which assist in IC design and manufacturing, are all supplying DDR3 4Gb, while DDR4 4Gb is currently mainly supplied by Nanya.

In terms of demand, the first quarter of this year saw an improvement in consumer DRAM demand due to an increase in SoC orders. Although demand for automotive use is still present, the market size is currently small. The visibility of netcom demand is still low, and buyers are generally cautious and believe that order demand will decrease in the second half of the year. Despite the original manufacturers' reduction in consumer DRAM production, the overall supply is still exceeding demand. It is estimated that there will be a 10-15% decline in average prices for the second quarter.