With SK Hynix suspending its review of an initial public offering (IPO) for Solidigm, securing investment funds to expand production capacity has emerged as a key task. While concerns over the dilution of shareholder value due to a duplicate listing have been alleviated, the company must now weigh the costs associated with alternative financing against the allocation of investment resources for its core business. It is also difficult to postpone investment, given the growing demand for storage devices for AI data centers and the accelerating pursuit by China’s YMTC (Yangtze Memory Technologies Corp.).
While announcing the suspension of reviews regarding an IPO and pre-IPO investment for its grand-subsidiary Solidigm, SK Hynix stated that "existing production facilities alone have limits in responding to increasing demand" and that "Solidigm, which is based in the U.S., is in a situation where it needs to secure new production facilities within the country."
The surge in demand for eSSDs (enterprise solid-state drives) for AI data centers has further highlighted the need to secure additional production facilities. According to market research firm Omdia, Solidigm accounts for approximately 6% of global NAND production capacity. To increase its production capacity, Solidigm is making maximum use of the remaining space in its existing cleanrooms.
With the path for external capital raising through an IPO blocked, Solidigm must secure expansion funds through other means. New semiconductor production facilities require enormous amounts of capital. For instance, the NAND production facility M17 that SK Hynix recently decided to build in Cheongju, Chungbuk Province, involves an investment amount reaching 19.1 trillion won.
As of the end of the first half, SK Hynix holds approximately 88 trillion won in cash and cash equivalents. Although it has substantial funds on hand, the company is also proceeding with investments to strengthen its competitiveness in HBM (high-bandwidth memory) and DRAM. It faces overlapping medium- to long-term investment tasks, including the Cheongju M15X facility, the Yongin semiconductor cluster, advanced packaging, and the Honam region semiconductor cluster. Considering even Solidigm’s production capacity expansion, it becomes crucial which business receives priority in the allocation of available cash.
Furthermore, having sufficient cash does not mean that executing all investments with internal funds is efficient. This is because the amount of capital invested in Solidigm reduces the flexibility to utilize resources for research and development, facility investment, or shareholder returns in other businesses.
A third-party allotment rights offering (paid-in capital increase) is an alternative, but it could reproduce the controversy over shareholder value dilution raised during the IPO review, as it would lower the shareholding ratio of existing shareholders. Borrowing from financial institutional investors or issuing corporate bonds can reduce the depletion of held cash, but they come with the burden of interest payments and principal repayment.
Securing strategic investors or forming joint ventures for production facilities are also options. However, terms regarding profit distribution, management participation, and supply conditions must be negotiated. In 2022, Intel jointly invested up to $30 billion in two factories in Arizona, U.S., with Brookfield. The cost is borne by Intel at 51% and Brookfield at 49%, but Intel retains operational control.
Which method is more advantageous than an IPO can only be determined by comparing actual financing conditions. SK Hynix explained that "expanding Solidigm’s production capacity and strengthening its competitiveness are important tasks" and that it will "review the timing, scale, and funding methods for investment."
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The timing of securing funds is also important. Since it takes time from factory construction to Yangsan, delays in financing could affect future supply capacity expansion. Considerations must include not only financing costs but also business opportunities lost due to investment delays.
In particular, China’s YMTC is rapidly catching up. Omdia forecasts that the annual NAND wafer production of SK Hynix, including Solidigm, will increase from 2.79 million units this year to 2.865 million units next year. Over the same period, YMTC’s production is expected to rise from 2.01 million units to 2.496 million units. If these forecasts hold true, the production gap between the two companies will shrink by more than half, from 780,000 units to 369,000 units.
Looking at Solidigm alone, wafer production is expected to increase from 930,000 units in 2024 to 990,000 units this year, a limited growth rate. According to Counterpoint Research, YMTC ranked third globally behind Samsung Electronics and SK Hynix with an approximate 17% market share based on NAND shipment volume in the second quarter of this year, surpassing Micron.
Solidigm differs from "carve-out" companies established by splitting off internal business units of a parent company. It was launched based on Intel’s NAND and storage business, which SK Hynix decided to acquire with an investment of approximately $9 billion in 2020. While overseas acquired companies may also face issues such as share dilution during the listing process, it is necessary to examine the formation process of the business and financing conditions to judge its economic effects.
Growing a business acquired externally and then opening up part of its shares to the market is a capital raising and investment recovery method used by global companies. Intel re-listed Mobileye, an Israeli autonomous driving technology company it acquired for approximately $15.3 billion in 2017, on NASDAQ in 2022. SoftBank Group also listed Arm, a British semiconductor design company it acquired in 2016, on NASDAQ in 2023. Through the sale of existing shares, it secured approximately $4.9 billion while maintaining about 90.6% of its stake.
The political establishment demanded a re-examination of Solidigm’s listing, arguing that it could reduce the interests of existing shareholders. However, public discussions focused on duplicate listings and profit distribution issues, and industry observers assess that there was a lack of proposals regarding under what conditions necessary funds should be secured after the suspension of the listing.
An industry official said, "To continue future investments without disruption, the timing of NAND expansion and the debt ratio must be finely tuned," adding that "it is time for meticulous financial management calculations that appropriately mix internal cash generation with external borrowing."
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