[Chipformation] Solidigm Experiencing Growing Pains Inside NAND Tunnel

As the NAND flash downturn intensifies, concerns are growing over Solidigm, Intel's NAND business unit acquired by SK Hynix with a 10 trillion won investment. Since early last year, NAND prices have been falling continuously throughout the year, with a decline of 20-25% in the fourth quarter compared to the previous quarter. Market research firm TrendForce expects NAND prices to drop by 10-15% in the first quarter of this year compared to the previous quarter.

Solidigm is a U.S. subsidiary operating Intel's SSD business acquired by SK Hynix in 2021. The name Solidigm is a portmanteau of Solid-State and Paradigm. Solid-State refers to a memory solution composed of NAND flash memory and controllers. At the time of acquisition, SK Hynix explained that the name symbolized leading a paradigm shift in the memory solution industry based on technological innovation and differentiated services. The inaugural CEO was Rob Crooke, Intel Vice President, and the chairman was Lee Seok-hee, former SK Hynix president. However, about a year later, Rob Crooke stepped down, and Kwak No-jung, CEO of SK Hynix, took over as Solidigm's CEO, with Park Jung-ho, SK Hynix Vice Chairman, appointed as chairman.

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Solidigm was expected to play a savior role in solving SK Hynix's long-standing challenges. SK Hynix's business structure was heavily skewed towards DRAM, making its NAND flash competitiveness relatively weak. In fact, in 2018, DRAM accounted for up to 80% of SK Hynix's sales, while NAND made up only 18%. SK Hynix and Intel did not overlap in their main sales markets in the NAND sector. SK Hynix focused on mobile, whereas Intel's NAND business had strengths in enterprise SSDs.

Currently, Solidigm is recording losses as initially anticipated by SK Hynix's management at its establishment. This is because costs arose when it became an independent SK Hynix subsidiary after being one of Intel's business units. Operating expenses previously tied to Intel's overall performance (such as production facility depreciation) and one-time costs related to corporate establishment were incurred. Last year, SK Hynix's U.S. NAND subsidiary reported a net loss of 3.3257 trillion won. The U.S. NAND subsidiary encompasses Solidigm, Intel's NAND business sales network, and overseas subsidiaries.

SK Hynix maintains that the acquisition of Solidigm should be viewed from a long-term perspective. Although the current business is difficult due to market contraction, synergy maximization will be possible once the M&A is completed by 2025 and semiconductor demand recovers. SK Hynix believes that by utilizing both the existing Charge Trap Flash (CTF) method and Solidigm's Floating Gate (FG)-based process in NAND, technological synergy effects can be achieved. CTF offers advantages in power efficiency, while FG provides benefits in product reliability.

Vice Chairman Park Jung-ho recently stated at the regular shareholders' meeting, "Although Solidigm's current performance is sluggish, it holds top competitiveness in enterprise SSDs," adding, "This year, we will continue to integrate development capabilities and improve cost structures." He further said, "Once a system that maximizes competitiveness is established, performance will improve faster than competitors when the market recovers."

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