SK Hynix Considers Solidigm Listing, Why?

SK Group is prioritizing geopolitical risks and is using the U.S.-Japan semiconductor agreement in the 1980s as a lesson to respond to the current U.S.-China conflict.

Solidigm, the NAND business acquired from Intel, has its production base in Dalian, China, which increases supply chain risks due to the intensifying U.S.-China conflict.

Accordingly, SK Hynix is making strategic moves to resolve these geopolitical risks by listing Solidigm and strengthening its global production capabilities in conjunction with its equity investment in Kioxia.

SK Hynix continues its strategic steps to survive in the global value chain, but information disclosure is limited due to concerns about strategy exposure and lobbying activities.

This lack of transparency causes investor anxiety, and since shareholder return is the spirit of the times, it is essential for management to build consensus with investors.

Samsung Electronics' recent revenue was around 200 trillion won, slightly below consensus, but profit exceeded market expectations despite exchange rate effects.

Although the foundry business still recorded a deficit of 500 billion to 700 billion won, it is reducing low-profit contracts and shifting to a selective order strategy, anticipating qualitative improvement in future performance.

It focuses its capabilities sequentially on HBM base die production, ASIC orders from big tech companies, its own AP Exynos, and other external customers.

This strategy prioritizes production aligned with the internal memory roadmap over external customer volumes, aiming to build a process system centered on high-profit products.

Despite Samsung Electronics recording a surprise in performance, the market raised doubts about the sustainability of profits, leading to a stock price decline.

In addition, selling pressure on Samsung Electronics due to semiconductor ETF rebalancing and a supply-demand gap following the end of treasury stock repurchases and cancellations are analyzed as factors that increased stock price volatility.

Due to shareholding restrictions on Samsung Fire & Marine Insurance and Samsung Life Insurance, it is highly likely that the company will consider canceling preferred shares rather than common shares.

This increase in ADR issuance could lead to existing share dilution, and if SK Square's stake falls below 20%, additional treasury stock repurchases may be necessary.

AMD's AI accelerator MI series has a higher proportion of HBM compared to Nvidia products, making stable memory supply crucial.

As TSMC's advanced process allocation falls short, AMD is exploring a multi-foundry strategy, and collaboration with Samsung Electronics is being considered.

In particular, foundry collaboration mediated by memory supply could be a positive catalyst for Samsung Electronics, with verification of Samsung Foundry's technology expected to be a key variable in the partnership.

TSMC has continuously increased its advanced process prices, and Samsung Foundry also raised its 4nm, 5nm, and 8nm prices by 10-15%.

However, Samsung has lowered its 2nm process price, providing an opportunity for fabless companies like AMD to strengthen their multi-foundry strategies.

Asset markets price in industry conditions six months in advance, showing a different timeline than the industry. The semiconductor market is now actively moving from a price-centric roadmap to one of volume expansion.

The timelines of industry and asset markets operate differently; asset markets typically price in industry conditions about six months in advance.

The scale of memory investment next year and TSMC's capital expenditure (CAPEX) are substantial. Order disclosures are expected to increase from the fourth quarter, along with actual performance confirmation, requiring proactive responses considering stock price attractiveness.

Considering the very large scale of next year's memory investment and TSMC's CAPEX, waiting until valuations appear cheap may mean that stock price attractiveness has already diminished.

Profit forecasts for the memory big two were adjusted downward by about 10% after peaking in September due to exchange rate effects, and analysts' exchange rate simulations also shifted downward from the 1,400 won range to the mid-1,200 won range.

However, semiconductor materials, parts, and equipment (Soojang) companies have high-margin structures, which means they face relatively less pressure for price reductions due to exchange rate changes, putting them in a favorable position during a period of exchange rate decline.

This, coupled with Samsung Electronics' Onyang and Cheonan fab conversions, could expand opportunities for domestic OSAT companies to transfer existing equipment.

The KOSDAQ market's shallow liquidity means that if funds move from the memory big two, stock prices are highly likely to surge.

Currently, supply and demand flows are intensifying around ETF-included stocks, and investment opportunities should be sought in items with increasing lead times, such as substrates and MLCCs.

Past semiconductor cycles were primarily driven by B2C durable consumer goods like smartphones or PCs, where price resistance was significant if prices rose, leading consumers to forego purchases.

However, the current AI industry has the nature of an arms race between nations and companies, with almost no price resistance, and demand growth is proven by the performance of major AI companies like OpenAI and Meta.

This AI semiconductor shortage could persist until mid-next year, and signs of price resistance or demand decline are considered matters to be addressed only after that.

Over the past decade, KOSPI showed a high correlation with foreign trading, but an unusual decoupling occurred in the first half of this year, revealing that domestic funds alone cannot resolve supply and demand issues.

The Korean market must be included in the MSCI Developed Markets Index, and companies must demonstrate their commitment to consistent shareholder return policies regardless of industry conditions to gain investor trust.

Like TSMC's shareholder return policy and increased ADR proportion, the Korean market must impress upon the market that it is a value storage tool capable of responding to volatility to attract foreign capital and restore trust.

While a consensus on the price (P) cycle was formed until the first half, many investors, including foreigners, now have doubts about the volume (Q) cycle, and fear about the peak of the stock price cycle still exists in the market.

Just as the government actively implements stimulus measures during sharp declines in the real estate market, similar trust is needed in the stock market. The Korean market must improve its shortcomings in terms of volatility response and investor trust.