SK Hynix and Samsung Electronics are focusing on upgrading equipment, transitioning processes, and expanding high-bandwidth memory (HBM) packaging capacity instead of investing in new equipment for 2025. This strategic approach aims to maintain their competitive advantage while managing supply-demand dynamics and pricing stability. However, increased DRAM production by Chinese competitors may challenge the success of this "natural attrition" strategy.

• Advanced manufacturing drives Korean strategy

According to Chosun Biz, Samsung and South Korean rival, SK Hynix will allocate KRW35 trillion (US$25 billion) and KRW19 trillion, respectively, in 2025, with a primary focus on DRAM process upgrades and HBM capacity expansion. Both companies emphasized their transition from legacy DRAM production to advanced manufacturing during their earnings calls for the third quarter of 2024.

Advanced DRAM manufacturing poses challenges due to its greater complexity and lower initial yields compared to legacy processes, limiting output growth. Projections show that Samsung and SK Hynix's fifth-generation 10nm-class (1b) DRAM wafers will ship 30% less than their legacy counterparts. Furthermore, their sixth-generation (1c) DRAM, set for mass production in 2025, will require time to overcome manufacturing complexities and achieve yield rates above 70%.

Samsung is reportedly redesigning its 1a and 1b DRAM in 2024, aiming to improve yields and performance, according to reports by TrendForce and ZDNet. The comprehensive effort will likely involve production process adjustments and, if needed, reconfiguration of core equipment. These changes may temporarily impact Samsung's DRAM shipments, potentially reducing global supply.

• Chinese expansion threatens the market balance

South Korean manufacturers refer to production losses during transitions to advanced DRAM processes as "natural attrition" or "natural decline," a strategy aimed at tightening standard DRAM supply and raising prices. However, significant output growth from China's CXMT could undermine its effectiveness.

Morgan Stanley reports that CXMT will increase its DRAM production capacity from 70,000 wafers per month in 2022 to 200,000 wafers per month by late 2024. By 2026, CXMT is expected to overtake Micron as the world's third-largest DRAM supplier.

Fujian Jinhua Integrated Circuit Co. (JHICC), a Chinese DRAM manufacturer sanctioned by the US in 2018, has expanded its monthly capacity to over 100,000 wafers, focusing on DDR4 production.

• AI demands reshaped memory outlook

For South Korean manufacturers, growth in advanced memory production fueled by AI will be a key driver of 2025 performance. Despite initial concerns about HBM oversupply, industry expectations point to sustained strong demand.

In early 2024, HBM demand for 2025 was projected at 15 exabytes (EB), but this has been revised upward to 25 EB. With supply estimates ranging between 25 and 26 EB, supply-demand tightness is likely to persist throughout 2025.