The global semiconductor industry is experiencing an unconventional market boom as the world approaches the “fourth industrial revolution.”
Defined by the World Economic Forum as a fusion of technologies that blur the lines between the physical, digital and biological spheres, the fourth industrial revolution brings the possibilities of connecting not only billions of people but also countless objects.
At the core of the gigantic change lies a 3-D technology to develop NAND flash memory chips. Their structure is often likened to those of high-rise apartments, and enabling connections of all mobile devices such as smartphones and tablet PCs, and storage of massive amounts of data.
For major chip suppliers, the 3-D NAND flash market that is in its early stage is full of opportunities to take the global lead, especially for the next five years with an outlook of at least 40 percent annual growth in demand.
(SK hynix)
Latecomers to the nascent 3-D NAND market are capturing the attention as they are on the lookout for such rare opportunities to take the market leadership from traditional chip suppliers like US-based Intel and South Korea’s Samsung Electronics.
SK hynix is recently at the height of the global attention as it moves closer to the top position in the 3-D NAND flash market with major plans to expand production of its 72-layer NAND chips and secure a stake in its Japanese competitor Toshiba.
As of the first quarter of 2017, Samsung had a 36.7 percent share in the global NAND flash market, followed by Toshiba with a 17.2 percent share, Western Digital with a 15.5 percent share and SK hynix had an 11.4 percent share, according to market researcher IHS Markit.
SK hynix, headquartered in Icheon, Gyeonggi Province, started developing 3-D NAND chips in 2015, about two years later than Samsung.
However, South Korea’s second-biggest chipmaker believes it has good odds, considering its current pace of 3-D NAND tech development and mass production capacity.
“Who wins is about who develops the technologies first,” a senior semiconductor industry official said. “SK hynix has the technologies to mass produce 72-layer 256-Gigabit 3-D NAND flash chips, the world’s highest so far. And the quality of SK hynix memory chips is neck-and-neck with that of Samsung.”
A key technology to develop next-generation 3-D NAND chips is called “string tacking,” which stacks multiple 3-D NAND chips and connects them. For example, huge R&D resources are being used to develop the technology to stack two 48-layer chips to create a 96-layer product. The more layers a chip has, the more data can be stored on it.
SK hynix has reportedly begun rolling out the 72-layer products, marking the highest number of layers so far in the industry.
Considering that the current tools to make 3-D NAND chips are able to produce 64 layers on average, SK hynix’s ability to create 72-layer products is no mean feat.
Although Toshiba and Western Digital recently announced a successful development of the industry’s first 96-layer 3-D NAND technology, it is too early to say the tech is fully ready for mass production in the near future, according to industrial sources. It takes several months or more than a year to do so.
“Since SK hynix is a company whose reputation is built on manufacturing capabilities rather than marketing power, technological innovation is our top priority for future growth,” said an industry source.
“According to the engineers, with their current technologies, it is possible to stack up to 200 layers, and we believe there will be technological breakthroughs to go beyond.”
The company is planning to construct a new fabrication line for 3-D NAND products in its second production base in Cheongju, North Chungcheong Province. A groundbreaking ceremony is expected to be held this month. The new line is planned for operation in 2019.
Beating SK hynix, Samsung last week started operating a new fabrication line for the company’s flagship 64-layer V NAND flash chips in Pyeongtaek, Gyeonggi Province. The timing makes Samsung well placed to take advantage of the current tight supply of NAND chips since the second quarter of 2016.
“The market has remained undersupplied for several quarters, with potential relief expected later this year as new wafer capacity from the majority of suppliers comes on line and all suppliers ramp up 64/72-layer 3-D technology in volume, moving the market into slight oversupply exiting Q3 2017,” said Walter Coon, director at IHS Markit in an email interview with The Korea Herald.
“As a result of the new capacity and 3-D technology transitions, NAND bit growth is expected to accelerate considerably in the second half of the year, with 13.5 percent and 13.2 percent growth in the next two quarters, bringing the total annual bit growth for the industry to 35.5 percent in 2017,” he said.
“Additional wafer capacity from Samsung, SK hynix, and other vendors, in addition to the ramp up of 64-layer 3-D NAND technology, should help ease the undersupply situation.”
Indeed, SK hynix posted record operating profit of 2.5 trillion won in the first quarter of this year, due to increased market prices of both DRAM and NAND chips stemmed from the undersupply.
According to market researcher DRAMeXchange, contract prices of NAND chips continued to rise for the past five quarters in a row with monthly growth rates of around 9 percent.
The company is forecast to break this record once again with an estimated operating profit of 3.04 trillion won for the second quarter.
“A projection for SK hynix’s annual earnings is very positive with a 259 percent forecast jump to 11.7 trillion by the end of the year,” said Do Hyun-woo, an analyst at Mirae Asset Daewoo. “If the Toshiba deal works out well, the outlook for the company will be much more positive.”
SK hynix is a member of a consortium led by US-based private equity fund Bain Capital and Japanese state-run financial institutions to acquire Toshiba’s NAND flash business. The Korean company joined the consortium by providing loans worth 3 trillion won to cover about 15 percent of the buyout price. The consortium is Toshiba’s preferred bidder.
By Song Su-hyun (
song@heraldcorp.com)
The Korea Herald is publishing a series of articles dissecting the status and plans of South Korea’s leading semiconductor businesses that are shifting the shapes of the global market. This is the first installment. -- Ed.