SK Hynix flooded with unprecedented offers from big tech to fund production amid chip crunch

Big Tech Courts SK Hynix With Unprecedented Offers

SK Hynix is facing an unusual predicament as major global technology firms aggressively pursue the memory chip manufacturer with unprecedented offers from big tech to invest in its production capabilities1

1

. The proposals include investing in new production lines dedicated to specific customers and funding manufacturing tools such as ASML's extreme ultraviolet lithography machines, which cost hundreds of millions of dollars1

1

. These offers underscore the severity of the memory chip supply shortage as chipmakers struggle to keep pace with surging AI demand driven by the artificial intelligence boom4

4

.

According to six people familiar with the matter, tech firms have proposed a range of deals to secure chip supplies, including financing dedicated memory production lines at facilities like SK Hynix's Yongin complex in South Korea, where dynamic random-access memory production is expected to dominate1

1

. One insider bluntly stated that "available capacity is essentially zero right now," adding that "there isn't even a small portion that can be designated for a specific customer"2

2

.

Major Tech Players Boost AI Infrastructure Spending

While SK Hynix has not disclosed which companies are making these offers, major U.S. technology firms have publicly announced massive spending increases on AI infrastructure. Microsoft revealed that its capital expenditures would rise to $190 billion this year, with $25 billion attributable to rising costs of components like memory chips1

1

. Meta stated during an earnings call that it is "investing aggressively to meet our infrastructure needs," including "striking deals throughout the supply chain to secure necessary components for future capacity"5

5

. Alphabet has similarly unveiled plans to boost spending on AI data centers and related infrastructure4

4

.

Memory chips are critical components in AI data centers, smartphones, PCs, and other technologies, making them essential for companies racing to build out AI capabilities. The structural growth in AI has created demand patterns that differ sharply from the memory chip industry's historically extreme boom-and-bust cycles4

4

.

SK Hynix Weighs Risks of Customer Financing

Despite being flush with cash and experiencing record share price gains of 154% this year, SK Hynix remains cautious about accepting financial commitments from customers5

5

. Two sources explained that such deals could create vendor-locking situations, holding the chipmaker hostage to specific buyers and requiring it to supply memory chips at lower prices in exchange for securing longer-term and more stable revenue guarantees1

1

.

The company stated it is "comprehensively reviewing various approaches and structural alternatives that differ from conventional long-term agreements" but declined to provide specific details about contract conditions. SK Hynix and its main rivals Samsung Electronics and Micron have acknowledged being in talks with customers for multi-year supply contracts, though details remain confidential4

4

.

New Contract Structures Emerge for Long-Term Agreements

Industry sources indicate that memory chipmakers are exploring novel contract structures to manage the unprecedented demand. One proposed mechanism involves a price-band system that would set both a floor and ceiling for annual pricing, effectively eliminating quarterly or seasonal price negotiations5

5

. Another structure under discussion involves prepayment, requiring customers to provide 30% to 40% of the cash upfront.

Samsung Electronics has indicated that unlike previous long-term agreements, recent deals signed with some customers are "binding," though it provided no further details4

4

. These multi-year contracts could help smooth out demand volatility and reduce investment risks for the cyclical industry, which requires billions of dollars of investment.

Production Capacity Constraints Persist Through 2028

SK Hynix posted blockbuster first-quarter earnings in April, with revenue surpassing KRW 50 trillion ($33.7 billion) for the first time, driven by strong sales of premium products including high-bandwidth memory (HBM), larger server DRAM modules, and enterprise SSDs3

3

. The company is building its new P&T7 Mega-Fab, equivalent to the size of 32 soccer fields, dedicated to next-gen HBM production, though the facility won't be ready until 20282

2

.

Both SK Hynix and Samsung warned last month that the current memory chip supply shortage would persist as it takes time for chipmakers to build capacity to keep up with structural growth in AI. Industry observers note that DRAM makers are only able to meet 60-70% of this year's demand, with expectations that shortages will intensify in coming years as new multi-gigawatt data centers come online2

2

. Samsung previously stated that 2027 will be far worse than 2026 for DRAM and NAND markets2

2

. Chip suppliers are also treading carefully about how they allocate scarce capacity to avoid regulatory scrutiny or the perception that they are favoring specific customers in the AI race5

5

.