SK Hynix Faces Challenges Amid U.S. Export Delays and Investment Uncertainty

The U.S. government has delayed the export approval for semiconductor equipment needed for SK Hynix's expansion of its factory in Dalian, China, raising concerns about potential setbacks for its semiconductor investment plans in New York. The company had intended to use profits from increased production at its Chinese facility to fund the new factory in the U.S., but these plans are now hindered by U.S. regulations on China. Following the recent halt of its subsidiary Solidaime's initial public offering (IPO) and growing uncertainties surrounding tax incentives, SK Hynix's investment strategy in the U.S. is facing multiple challenges.

According to Reuters, citing sources, SK Hynix requested export approval for U.S.-made semiconductor manufacturing equipment necessary for expanding its Dalian factory, but the U.S. Department of Commerce has yet to grant this approval. The company plans to utilize profits from enhanced productivity at the Dalian facility to finance its new factory investments in the U.S. Sources indicate that the approval for the Dalian expansion is a critical factor influencing the investment plans in New York.

SK Hynix is considering building two NAND flash production plants for Solidaime in New York. Initial investment estimates are around $45 billion, with potential long-term expansion up to $100 billion.

The Dalian factory serves as a key production hub for Solidaime's NAND flash products. SK Hynix has been working on increasing production capacity by adding equipment to existing idle clean rooms. However, the U.S. government maintains a negative stance on the import of equipment necessary for expanding semiconductor production capabilities in China. According to Reuters, Solidaime's management has held nearly ten discussions with the U.S. Department of Commerce since late August but has not been able to reconcile differences.

The issue is that pathways to secure funding for U.S. investments are increasingly blocked. On October 23, SK Hynix announced it would halt its review of Solidaime's IPO due to market conditions and stock trends. Previously, there were expectations that the IPO could raise up to $15 billion, which would cover about one-third of the initial $45 billion investment for the new U.S. factory. With the IPO on hold, the profitability of the Chinese factory has also become uncertain.

However, SK Hynix is not currently facing an immediate cash shortage. As of the end of the third quarter, its net cash stood at approximately 98.7 trillion won. The company's cash generation capabilities have significantly improved due to the booming AI memory market. Analysts believe that even after the IPO halt, SK Hynix can secure funding for U.S. investments through its cash flow or external borrowing.

Nonetheless, the simultaneous large-scale investments both domestically and internationally pose a burden. SK Hynix is investing heavily in expanding its semiconductor cluster in Yongin and its production facilities in Cheongju, as well as increasing HBM4 production capacity. In August, the company decided to invest a total of 54.3 trillion won in new factories in Yongin and Cheongju. Long-term plans include investing 600 trillion won in the Yongin semiconductor cluster and 100 trillion won in the Cheongju production facilities.

Time constraints also add pressure to the U.S. investment plans. According to U.S. federal tax law, a 35% tax credit applies to qualified capital investments in semiconductor manufacturing facilities, but construction must begin by the end of this year. If Solidaime's investment plans are not finalized and negotiations drag on, uncertainties regarding tax incentives are likely to increase.