Samsung, SK chip investment timelines leave room for adjustment

President Lee Jae Myung, SK hynix CEO Kwak Noh-jung, left, and Samsung Electronics Vice Chairman Jun Young-hyun, right, pay respect to the national flag during a ceremony to announce the chipmakers' investment plans for Gwangju and surrounding South Jeolla Province at Kimdaejung Convention Center in Gwangju, Tuesday. Yonhap

Samsung Electronics and SK hynix announced a combined 800 trillion won ($516.4 billion) investment commitment to establish advanced chip plants in Gwangju and South Jeolla Province in Korea's southwest, but stopped short of providing a timeline for when the investments will be made or construction will begin, leaving room to adjust their spending plans until the long-term memory chip cycle becomes clearer.

According to the government and the chipmakers, Samsung and SK will each invest 400 trillion won to build two advanced memory fabrication each in the region, for a total of four new fabs as part of the government’s “three megaprojects for Korea’s leap forward.”

Samsung Electronics Executive Chairman Lee Jae-yong named Gwangju as the candidate site, while SK Group Chairman Chey Tae-won referred to the region as a whole.

While announcing the massive plans while standing with President Lee Jae Myung, who have been urging the chipmakers to make investment in the southwestern region, the leaders refrained from specifying timelines for the new fabs.

The companies also did not mention an investment timeline in their press releases, referring only to the investment amount and the region. They likewise made no clarification of timelines in their regulatory filings posted Monday and Tuesday.

Instead, the companies included a disclaimer, saying the “long-term investment plans are provided as guidance based on current market conditions and may change depending on future market and business conditions.”

A Samsung Electronics semiconductor plant is surrounded by apartment complexes in Hwaseong, Gyeonggi Province, Tuesday. Yonhap

This is because the semiconductor industry has traditionally been cyclical, with its ups and downs driven by supply and demand dynamics.

Both companies are currently enjoying strong profitability as demand for chips used in AI data centers continues to surge while supply remains constrained. If the current upcycle continues, the chipmakers will be able to boost earnings by expanding their market share with the additional capacity.

However, if demand growth slows, the expanded capacity could instead lead to lower fab utilization, while fixed costs remain high. This means that the companies’ latest investment plans are based on the assumption that there will be sustained demand for memory chips over the long term.

Multiple analysts believe the current memory chip upcycle will likely continue through 2028, but opinions are mixed on whether it will continue past that point, as the additional capacity now being built by major global chipmakers will come into operation around that time.

For Samsung Electronics, Phase 3 of its P4 plant is expected to begin operations in 2027 to produce 50,000 wafers per month. In 2028, Phase 4 of P4 will begin operations and bring capacity for another 50,000 wafers. Phase 1 of its P5 plant is scheduled to churn out 100,000 wafers per month.

SK hynix also plans to begin operating its M15X fab with a 50,000-wafer capacity in 2027 and part of its Yongin fabs will come on stream in 2028 with a capacity of 70,000 or more wafers. Micron's new fabs in Hiroshima, Idaho and Singapore are likewise expected to begin operation around the same time.

Construction is underway at a semiconductor cluster site in Yongin, Gyeonggi Province, Monday. Yonhap

“If Big Tech companies and cloud service providers are no longer able to absorb soaring memory chip prices and massive capital expenditures, it will be difficult for memory makers to sustain operating margins over the long term and the market could enter a correction after 2028, accompanied by falling memory prices,” iM Securities analyst Song Myeong-seob said.

“However, the upcycle could continue beyond 2028 if AI services trigger a global surge in paid subscriptions or if disruptions at memory production facilities further tighten supply.”

Kyung Kye-hyun, former head of Samsung Electronics' Device Solutions Division, said at a forum on May 18 that "we have to be cautious about the year of 2028," citing a possible slowdown in tech companies' investments and expanding memory supply from China.

Given that the latest chip initiative was largely spearheaded by the Korean government, industry officials said the companies' decision not to specify when the investments would be made indicates an effort to leave room to adjust their spending plans depending on market conditions.

“The government is showing a strong commitment to support the companies’ investment plans, and the chipmakers also need to expand capacity from a long-term perspective," an industry official said.

"However, it is very difficult to predict market conditions 10 to 15 years from now. With the companies now building a separate chip cluster in Yongin, Gyeonggi Province, it would be extremely difficult to make a fixed commitment to another large-scale capacity expansion. The companies will want to retain flexibility, and the government and local authorities also need to understand their circumstances."

The government, Samsung Electronics and SK hynix held an event in Gwangju on Tuesday to announce their investment plans for the southwestern region. During the event, Samsung Electronics Vice Chairman Jun Young-hyun and SK hynix CEO Kwak Noh-jung spoke about their investment plans for the region, but did not specify timelines. They asked for the government's support for infrastructure, including power, industrial water and human resources education, while government promised full-fledged support.