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ANALYSISSK hynix unlikely to acquire GlobalFoundries

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SK hynix's DRAM semiconductor plant in Icheon, Gyeonggi Province / Korea Times file
SK hynix's DRAM semiconductor plant in Icheon, Gyeonggi Province / Korea Times file

By Kim Yoo-chul

After its chief executive Park Jung-ho clarified that SK hynix plans to double the capacity of its foundry (contract-based chip fabrication), investors have been saying that the world's No. 2 memory chipmaker will "soon" try to invest in a foundry chip-making company.

SK has a very stable position in terms of profit-seeking in the global memory chip market, where it trails only market leader Samsung Electronics. The global memory chip market has already been rationalized with three major players, including Micron Technology of the U.S. Thus, it's unlikely that SK hynix will invest a billion dollars for the acquisition of a big-name company to bolster its profile in a sector it hasn't massively explored already.

As of the first quarter of this year, Samsung was the leader in dynamic random-access memory (DRAM) chips, with a global share of 42 percent, followed by SK with 29 percent. As SK is still pursuing its profit maximization strategy focusing on DRAM chips ― with the company investing money earned from DRAMs into the development of NAND chip technology and the tech migration of advanced DRAMs ― investing heavily into foundry chips right now doesn't make sense, sources involved with the matter say.

SK's sales of non-memory semiconductors and its foundry business only take up 2 percent of its total revenue.

Sources in the local investment banking industry say the chances are low that the SK affiliate will "seriously review" the possibility of acquiring a stake in GlobalFoundries, a spinoff from AMD's semiconductor unit, because of the huge financial burden ― GlobalFoundries' valuation is at some $20 billion. SK already has to prepare some 7 trillion won this year as part of the payment plan for its earlier acquisition of Intel's NAND storage unit.

Right after CEO Park's remarks, DB HiTek, a domestic foundry chip-making company, emerged as a potential acquisition for SK, as DB's flagship product portfolio overlaps with those of SK that are currently being produced at its local plants. But given the amount of DB's total assets ― some 2.5 trillion won as of last week ― and the additional payment for a control premium, it's unlikely that SK will be deeply interested in DB, sources say.

"Plus, DB HiTek is DB Group's flagship unit, with the affiliate generating a profit margin of over 30 percent. Amid the continued steady demand for foundry-based chips, the sale of DB HiTek doesn't make sense," one industry banking source said.

The most feasible scenario is for SK to make an additional investment in Key Foundry, which SK already invested in earlier. Established in 1979, the firm, which mainly manufactures custom chips using 8-inch wafers, had been owned LG Semiconductor. Last year, the company was sold off by a private equity firm, with SK owning 49.8 percent and MG Community Credit Cooperatives owning 50 percent plus one share.

"At the time of the investment, SK invested some 207 billion won, and I would say there is a high possibility that SK hynix will acquire MG's shares. Key Foundry's core products are display driver chips and image sensors, the products of which are based on an 8-inch wafer. Its manufacturing facilities are based in the provincial city of Cheongju, where SK's NAND flash factories are also located," one source said.

Lee Jae-yoon, an analyst at Yuanta Securities, said, "Given the unpopularity of equipment for 8-inch wafers, if SK hynix wants to double the amount of 8-inch fab capacity, it has no other options but to repurchase equipment that it sold earlier. It's been expected that SK will move to control the management of Key Foundry completely."

Regarding SK's possible exit from Kioxia, which SK invested about 4 trillion won in back in 2017, it's also unlikely that SK hynix will initiate an exit strategy anytime soon, despite market speculation that SK will retrieve its investment as an act of profit-taking following Kioxia's IPO.

Kioxia is the world's No. 2 NAND chip manufacturer. U.S.-based private equity fund Bain Capital owns some 50 percent of Kioxia's shares. Earlier speculations were that SK may retrieve its investment in Kioxia after its DRAM chief rival, Micron, joins with Western Digital possibly to acquire Kioxia in order further to boost their presence in the booming flash memory chip segment.


Kim Yoo-chul yckim@koreatimes.co.kr


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