Scaling Up HBM Production for Survival... Samsung, SK Restructure General-Purpose Memory Supply Chain Through Overseas Relocation and Outsourcing

HBM Focused Domestically, General-Purpose Memory Moves Overseas

Partners Expand Back-End Operations in Vietnam, India, and the Philippines

Production Capacity Realigned Amid Soaring AI Memory Demand

Samsung Electronics and SK hynix are concentrating their domestic production sites on high-bandwidth memory (HBM) for artificial intelligence (AI) applications, while dispersing the back-end processes for general-purpose memory to overseas locations and external contractors. This approach secures domestic production capacity to respond to rapidly increasing HBM demand and allocates packaging and testing volumes for standard memory products to partner firms. As these partners expand their production sites in Vietnam, the Philippines, and India, the pace of memory supply chain restructuring is accelerating.

According to the semiconductor industry on October 6, Samsung Electronics has recently been gradually increasing the volume of outsourced back-end processes for general-purpose memory, including server DDR5. The company is focusing the production capacity of its domestic back-end sites, such as in Cheonan and Onyang, on HBM and advanced packaging, while utilizing external vendors for the relatively standardized processes of general-purpose memory.

The core of the restructuring lies in how domestic production capacity is allocated. With the rapid expansion of the AI server market, HBM demand has surged, increasing the need to dedicate limited production resources to high-value-added products. The industry explains that the expansion of outsourcing for general-purpose memory is not just a cost-saving measure, but a strategy to secure more capacity for HBM production.

The role of Samsung’s overseas production partners is also growing. In Vietnam, Hanyang Digitech; in India, Dreamtech; and in the Philippines, SFA Semicon are participating in the memory back-end supply chain. These companies are responding to the increased volume of external orders by expanding their local plants or boosting equipment investments.

There are also changes in partner company performance and operational rates. According to Hana Securities, SFA Semicon's sales in the first half of this year reached 233.6 billion won, a 54.3% increase compared to the same period last year. The average utilization rate of the Philippine site rose from 39% last year to 65% in the first half of this year. During the same period, the domestic site utilization rate increased from 33% to 40%. The portion of sales to Samsung Electronics reportedly reached as high as 75%.

An industry official said, "Samsung Electronics is gradually outsourcing small quantities of general-purpose memory to back-end contractors," adding, "To handle the increased volume, partners are expanding local plants and placing orders for additional equipment."

SK hynix is following a similar trend, increasing its focus on HBM production while expanding the outsourcing of back-end processing for general-purpose memory. According to Counterpoint Research, HBM accounted for 15% of SK hynix’s DRAM shipments in the second quarter of this year, up from just 1% in the first quarter of 2023. Over the same period, sales at Hanamicro Vietnam, which is responsible for general-purpose memory back-end processing, increased approximately 4.7 times from 53.9 billion won to 252.3 billion won.

While domestic HBM production expands, overseas partner firms handling general-purpose memory back-end processes are also growing their business scale. However, changes in partner sales figures can also be affected by the broader memory industry environment and shifts in customer demand.

The role of overseas sites is expected to further expand, particularly in testing processes. Hana Securities analyzed that as Samsung Electronics operates the Onyang line centered on HBM, there has been an increase in outsourcing the final testing of general-purpose memory. Jonghwan Lee, professor of system semiconductor engineering at Sangmyung University, stated, "Given supply commitments to customers and the high added value, domestic capacity will primarily be allocated to HBM, while overseas production sites are likely to be used to supplement any shortages in general-purpose DRAM."

This content was produced with the assistance of AI translation services.