SK hynix will build a US fab for Solidigm, but scraps IPO plans

SK hynix will construct a US semiconductor fabrication facility for Solidigm, although the South Korean company is abandoning plans for an initial public offering (IPO) that could have provided the necessary financing. The decision to forgo the IPO highlights the tension between the need to expand chip production and the financial requirements to fund such an endeavor.

The expansion is essential to meet the rising demand for AI storage, which is placing a strain on Solidigm's existing manufacturing capacity. SK hynix, the parent company, acknowledges that an additional production facility would be crucial for supporting Solidigm's high-capacity enterprise SSD business, as its current manufacturing capabilities barely meet the projected requirements.

SK hynix has terminated its review of both an IPO and a pre-IPO funding round due to market volatility and a correction in semiconductor stocks. The company is now exploring alternative funding options. Solidigm intends to increase its production of floating-gate 3D QLC NAND memory for its high-capacity data center SSDs, utilizing both QLC and 3D stacking technologies to enhance storage density.

The surge in AI infrastructure deployments is driving the demand for high-capacity storage, necessitating an expansion of Solidigm's manufacturing capacity, rather than merely broadening its product range. A new US fab would augment output to support this growth and expand SK hynix's presence in the American market.

However, the scale and timeline of the project remain unspecified. Building a modern 3D NAND fab can cost tens of billions of dollars. SK hynix explored various financing avenues, including direct investment, pre-IPO financing, and a public offering, to fund the expansion. An IPO would have raised external equity without increasing debt, providing Solidigm with a standalone market valuation. SK hynix believes its share price does not fully reflect the true value of Solidigm, but weak market conditions make it undervalued.

The combined market share of SK hynix and Solidigm accounts for 21.1% of the thriving enterprise SSD market. However, this figure fails to represent Solidigm's standalone profitability or the extent of its cash contribution towards the construction of the new fab.