The global economic recovery has ushered in an atmosphere of escalating competition for SK Hynix, a leading semiconductor manufacturerThis is particularly evident in the rapidly declining export figures for Multi-Chip Packages (MCP), which include High Bandwidth Memory (HBM) AI chipsRecent reports from the South Korean data platform KED Aicel reveal that the export value for MCPs from SK Hynix's chip factories in Icheon and Cheongju reached $1.29 billion in JanuaryThis amount not only marked a 105.7% year-over-year increase but also reflected a significant 29.8% decrease month-on-monthAfter adjusting for working days, January's figures showed a 19.3% decline compared to December, making it the most considerable drop since the company developed the world’s first 12-layer HBM3 chip in April 2023.

MCP typically refers to a combination of HBM and mobile device memory, both of which are categorized as high-capacity chipsAnalysts are quick to point out that this decline in monthly sales indicates a shift in the once-robust demand for advanced HBM chips, which are now increasingly susceptible to fluctuations in import demandThe sharp decrease in exports signals the waning interest in HBM, leading industry insiders to suggest that the demand for AI chips has now become seasonally influenced.

One industry veteran commented, “The drop in MCP exports in January highlights how vulnerable AI chip demand has become to seasonal changes.” Analysts are forecasting that the sensitivity of the HBM market to these seasonal trends will intensify over the next few quarters. iMSecurities analyst Song Myung-seop stated in a recent research paper that even within the HBM market, seasonal trends have begun to manifest.

Expectations for SK Hynix's HBM shipments in the first quarter predict a decrease of more than 10% compared to the fourth quarter of 2024. Similarly, forecasts indicate that the company’s shipments of DRAM and NAND chips will drop by 12% and 18%, respectively, during the same timeframe

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Shinyoung Securities analyst Park Sang-wook anticipates that global HBM demand this year will double compared to last yearHowever, during the first quarter, HBM sales are expected to experience a decline from the previous quarter, largely attributed to tightening U.S. trade restrictions against ChinaAccording to KED Aicel data, Samsung Electronics’ chip factories in Pyeongtaek, Yongin, Suwon, Cheonan, and Asan collectively saw a staggering 62.3% decrease in MCP exports in January compared to the previous month.

At the same time, public interest in HBM appears to be dwindlingAccording to Google Trends, searches for the term "HBM" peaked in November 2023 but have since plummeted by over 10%. Notably, the search volume for HBM on Google in November was nearly double that of April 2023. Among the most frequently searched terms associated with HBM is SK Hynix, further emphasizing the attention it garnersPlatforms like Google, Naver, and YouTube often serve as leading indicators for investors seeking opportunities.

Park I-kyung, a data analyst from Hankyung Aicel, remarked, “Google Trends data provides valuable insights into changes in consumer interests and market trendsThe recent strong upward trend in HBM-related searches has been losing momentum.”

Meanwhile, the rise of Chinese AI startup DeepSeek has cast a negative shadow over the marketReports suggest that DeepSeek’s emergence has led to setbacks for American tech giants like Nvidia, raising uncertainties for both Samsung Electronics and SK Hynix in the rapidly expanding AI memory chip sectorDeepSeek has recently launched its latest inference model, R1, which is said to be on par with OpenAI’s offeringsDespite utilizing a low-end Nvidia graphics processing unit (GPU) designed for the Chinese market, the cost to train this model reportedly only exceeded $5.5 million slightly.

While many details remain unverified, this development has sparked questions regarding the competitiveness of large tech companies that have invested billions in AI infrastructure. iM Securities analyst Song Myung-sup noted, “The business model that has driven significant investment into AI development is changing

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Large tech firms may now be shifting focus towards more efficient strategies rather than engaging in blind competition for the latest GPUs.”

He further stated, “This shift could adversely impact Korean memory semiconductor companies that have been supplying high-capacity HBM to Nvidia to meet AI demands.” Amidst this turmoil, investors are rapidly divesting from Nvidia stocks, which hold a 70% market share in the AI semiconductor sectorOn January 27 (local time), the company reportedly lost about $589 billion in market value, with no signs of recoveryOther U.S. stocks related to its AI value chain are also experiencing challenges.

If the anticipated demand for Nvidia’s high-performance GPUs weakens as expected, SK Hynix, which exclusively supplies HBM3e to Nvidia, could see a dramatic decline in revenueHBM3e is the most advanced version in its category, playing a pivotal role in enhancing GPU performance, with 40% of SK Hynix's overall DRAM sales derived from HBM businessSamsung Electronics is also conducting quality tests in preparation for supplying these chips to Nvidia, viewing it as a promising revenue source.

The plummeting stock prices of Samsung Electronics and SK Hynix following the announcement of DeepSeek further highlight market anxietiesSamsung’s stock dropped 2.4% to 52,400 won ($36.07), while SK Hynix’s shares fell sharply by 9.8% to 199,200 won on the first trading day after DeepSeek's unveiling.

This decline came on the heels of a brief surge in power-related stocks, which had previously spiked due to expectations of benefiting from AI infrastructure developmentsSamsung Device Solutions (DS) vice president Kim Jae-joon informed investors during the Q4 earnings conference that “Due to our provision of HBM for GPUs to multiple suppliers, we are closely monitoring industry trends and considering various scenarios.”

He emphasized, “Amid both long-term opportunities and short-term risks within the market, we will ensure a rapid and timely response to changing market dynamics.” Beyond market volatility, geopolitical tensions add another layer of uncertainty for South Korean chip manufacturers.

Reports indicate that in an effort to reinforce its dominance in the AI space, the U.S. government is considering measures to block exports of Nvidia’s low-end H20 chips, which are equipped with Samsung’s HBM, to China

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In response, China may intensify support for domestic semiconductor companies, accelerating self-sufficiency and potentially reshaping demand for South Korean chips.

Kim Jae-joon commented, “Should the U.S. government impose a blanket ban on Nvidia’s sales of dedicated GPUs in China, Korean DRAM manufacturers supplying HBM for these GPUs would also face adverse impacts.”

Samsung and SK Hynix are ramping up their efforts in the HBM sectorAccording to reports, Samsung Electronics has been redesigning its cutting-edge DRAM since the latter half of last year to increase chip sizesThis approach focuses less on productivity and performance, and more on yield rates, which signifies a strategic shift towards the stable mass production of high-value memories like HBM.

Industry insiders revealed that Samsung began developing 1c (the sixth generation of 10-nanometer) DRAM by employing larger chip sizes than existing products last yearThis upcoming 1c DRAM is slated for mass production in the second half of this year, with a line width of approximately 11 to 12 nanometers (nm). The previous generation, 1b (fifth generation) DRAM, is projected to fall around 12-13 nm.

Samsung plans to prioritize the application of 1c DRAM for the next generation of HBM4 (sixth generation HBM), aiming to quickly enhance the competitiveness of HBM against DRAM, giving them a one-generation lead over primary competitorsCompanies like SK Hynix and Micron have already decided to utilize 1b DRAM for HBM4.

However, Samsung's 1c DRAM has encountered hurdles in achieving improved yield rates since its initial developmentReports indicate that while the first batch of high-quality products was obtained last year, the output has yet to reach satisfactory levels.

The primary obstacle lies in productivityInitially, considering competition, Samsung had opted to reduce the chip size of the 1c DRAM compared to their original plansWith decreasing chip sizes, production quantities per wafer increase, benefiting manufacturing cost efficiency

However, some argue that this could undermine stability.

Consequently, Samsung decided at the end of last year to partially revise the design of 1c DRAMThis redesign aims to optimize core circuit linewidths to a minimum while relaxing standards for peripheral circuit linewidths to boost yield rates quickly.

Numerous insiders have remarked, “Samsung has altered the design of the 1c DRAM to increase chip sizes and is committed to improving yields, targeting completion by mid-year.” Furthermore, “They seem determined to stabilize mass production of the next generation of memory, even if it incurs higher costs.”

It is too soon to declare significant yields for the redesigned 1c DRAM following the changesAnalysts expect concrete results to be announced around May or June.

Simultaneously, for similar reasons, some 1b DRAM products are undergoing redesigns to enhance yield ratesReports indicate a push to improve the yield for 32Gb (gigabit) 1b DRAM products intended for servers to reach production levels of 70-80%.

At a recent earnings announcement, Samsung projected that starting in the second quarter, the supply volume of its enhanced HBM3E would see comprehensive growthThis trend aligns closely with the U.S. government’s implementation of advanced semiconductor export control policies, which have driven customer demand gradually toward the upgraded HBM3E, although this may temporarily suppress overall HBM demand.

However, it is noteworthy that demand for the 12-layer HBM3E is expected to see a rapid surge starting in the second quarter, with growth rates perhaps exceeding previous expectationsTo accommodate this, Samsung has devised plans to double its HBM bit-supply volume for the year compared to last year to ensure it adequately meets market needs.

Samsung's proactive measures and strategic planning within the HBM domain undoubtedly enhance its competitiveness and development momentum in the semiconductor chip market.

Nevertheless, challenges persist

Samsung executives pointed out that while HBM sales may achieve a remarkable 190% quarter-on-quarter growth by Q4 2024, they have yet to reach anticipated levelsDespite this, Samsung maintains an optimistic outlook for the future of the HBM market, expecting demand to rebound in the second quarter of 2025. Therefore, the company has set targets to achieve a doubling of HBM supply this year compared to last.

Industry leader SK Hynix is also rapidly positioning itself within the HBM landscapeThe chairman of the SK Group previously stated that SK Hynix’s development of High Bandwidth Memory (HBM) is outpacing Nvidia’s demandIn a notable development, it has been reported that South Korea’s memory chip giant SK Hynix has secured a substantial order to supply HBM to BroadcomInsiders disclosed that the American semiconductor giant intends to source memory chips from SK Hynix to be used in an AI computing chip for a major tech companySK Hynix is expected to deliver the chip in the second half of next year.

Additionally, SK Hynix is increasing its DRAM production capability forecasts as it currently supplies the bulk of HBM for Nvidia’s AI acceleratorsReports suggest this Korean firm plans to escalate its production of 1b DRAM (which serves as the core chip for its HBM) to 140,000 to 150,000 300mm wafers next yearHowever, with the new deal with Broadcom, this figure is anticipated to increase to 160,000 to 170,000 wafersFurthermore, SK Hynix may postpone its timeline for the installation of 1c DRAM (the next subsequent product of 1b DRAM) equipment to prioritize this new urgent demand.

Additionally, SK Hynix is reportedly planning to invest over 10 trillion won, which includes converting its existing outdated memory production lines into HBM production lines.

As DeepSeek's emergence has provoked a reassessment of HBM by these two giants, the landscape may face impending short-term volatility.

According to Samsung, entering the first quarter of 2025, a decline in HBM revenue is anticipated, along with increased uncertainty regarding demand

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