Samsung and SK Hynix Expand DRAM Businesses to Meet Growing AI Demand

Samsung Electronics Co. and SK Hynix Inc., the world’s leading memory chipmakers, are strategically expanding their dynamic random-access memory (DRAM) businesses in response to the surging demand for artificial intelligence (AI) applications. The global DRAM market is projected to surpass the foundry sector, driven by the rapid growth in AI technology.

Samsung has decided to prioritize the construction of the PH3 production line for DRAM and other components in Gyeonggi Province, South Korea, while temporarily suspending the development of a foundry clean room, industry sources in Seoul revealed on Monday. The PH3 factory is expected to manufacture DRAM chips specifically designed for high-bandwidth memory (HBM) chips, which will be integrated into Advanced Micro Devices Inc.’s AI accelerators.

The company’s capital expenditures for DRAM, excluding building construction costs, are estimated to increase by 9.2% to $9.5 billion in 2024, marking the highest investment since 2020. Citigroup predicts that Samsung’s DRAM capex will further rise to $12 billion in 2025. Similarly, SK Hynix plans to triple its spending on DRAM chips from $2.3 billion in 2023 to $7.1 billion this year. The company’s investments in the sector are expected to reach $10.5 billion in 2025.

Approximately 65% of memory chip investments will be allocated to DRAMs, with a particular focus on high-value-added DRAMs like HBMs, according to Peter Lee, co-head of Citi’s global tech & communications. The memory chip market, including DRAM and NAND flash chips, is projected to nearly double to $175 billion this year, surpassing the $120.3 billion foundry industry dominated by Taiwan Semiconductor Manufacturing Co. Omdia and Techinsights Inc., industry analysis firms, anticipate that the memory chip market will exceed $200 billion by 2025, with the DRAM market alone reaching $162 billion for the first time.

Samsung and SK Hynix are set to invest billions of dollars in the development of next-generation products such as processing in memory (PIM), which enables central processing unit (CPU) operations within the memory itself. Memory chips are expected to play a crucial role in addressing the performance slowdown caused by the exponential growth of data.

Earlier this year, SK Hynix received a lucrative offer from an AI accelerator manufacturer, requesting the establishment of a dedicated memory chip production line. However, the company declined the offer as it needed to fulfill product supply commitments worth over 1 trillion won. This anecdote highlights the era of memory-centric computing, driven by the rapid growth in AI technology.

The global RAM capacity is projected to increase from 1.5 million units in 2020 to 1.8 million units per month this year, and further to 1.9 million units in 2025, according to industry tracker DRAMeXchange. Concerns about oversupply have arisen due to these capacity expansions. However, the booming AI industry, with 13 major tech companies planning to invest $226.2 billion in AI data centers this year, is expected to sustain the demand for DRAM chips. Investments in AI are predicted to grow by 13.4% to $256.6 billion in 2025.

The prices of HBM chips, which are estimated to account for a significant portion of Samsung’s and SK Hynix’s DRAM production by the end of 2025, are significantly higher than the latest general-purpose DRAM chips, double data rate 5 (DDR5). This trend is expected to drive up the profitability of the two South Korean chipmakers, with industry analysts predicting operating profit margins of over 40% for both companies this year.