Pre-IPO and IPO plans halted Friday

'New US NAND facility needed' — but funding source unclear

Share issuance or borrowing may replace up to $10 billion offering

Credit rating, NAND cycle volatility pose key hurdles

Direct SK hynix support would strain shareholder returns

Editor's note: Chip Chip Fab Fab is a series that explores the semiconductor industry driving the AI era — in depth and in plain language. The name links the "chip" at the heart of the AI revolution with the "fab" that makes it, and evokes the relentless forward momentum of the industry, much like a train in full motion. The series unpacks complex technology clearly, goes behind the headlines, and tracks the forces shaping semiconductors today and tomorrow.

The headquarters of Solidigm in California. [Provided by Solidigm]
The headquarters of Solidigm in California. [Provided by Solidigm]

SK hynix officially announced Friday that it is withdrawing plans for an initial public offering of Solidigm, its US-based NAND flash memory chip subsidiary, citing opposition from shareholders and politicians.

In announcing the halt to the IPO process, SK hynix also formalized Solidigm's plans to build a new fab in the United States. Solidigm — which traces its roots to Intel's NAND business — has operated its only fab in Dalian, China, but reports of a potential US production investment began circulating last month.

Building a new fab is expected to require funding in the trillion-won range. Had Solidigm completed its planned IPO, it could have raised that scale of capital from the market, but the company must now find an alternative source. With equity market financing no longer a viable option, industry watchers expect SK hynix to provide support through a capital increase or Solidigm to pursue direct borrowing.

SK hynix announced Friday the suspension of its review of both a pre-IPO stake sale and a full IPO for Solidigm, while disclosing the company's US investment plans.

"Growing memory chip demand in the AI era represents a new growth opportunity for Solidigm," the company said. "Existing production facilities alone have limits in meeting rising demand, making it necessary to secure new production facilities in the United States."

According to foreign media reports, Solidigm is considering sites in upstate New York for a new NAND fab. New York Governor Kathy Hochul is said to be in negotiations to attract a Solidigm factory to Utica.

Solidigm has long operated its NAND fab in Dalian, China — a facility it acquired when SK hynix agreed in 2020 to purchase Intel's NAND business for $9 billion.

Surging AI data center investment has driven a sharp increase in NAND demand, boosting appetite for the enterprise solid-state drives that Solidigm produces. The company is aggressively targeting that market with its high-capacity quad-level cell technology. QLC stores four bits of data per cell, maximizing storage density per unit area.

The push for a US fab reflects not only growing AI investment demand domestically but also mounting pressure to build semiconductor facilities on American soil. Some analysts note that a new US fab could also serve as a negotiating card in talks over US export restrictions on advanced equipment for the Dalian facility, potentially helping Solidigm expand production capacity there.

Even so, establishing a new NAND fab in the United States will inevitably require trillion-won-scale spending. Recent SK hynix investment figures illustrate the magnitude.

SK hynix said in August that it would invest about $4 billion in building an advanced packaging facility in Indiana. Front-end fabs — which handle the full process of forming circuits and memory cells on wafers — typically require even larger outlays than back-end packaging facilities, suggesting Solidigm's US project could cost considerably more.

The investment plan SK hynix announced in July for its Cheongju NAND fab offers another benchmark. The company committed 19 trillion won ($14.3 billion) to build the M17 facility in Cheongju — its first new NAND factory in a decade — with groundbreaking planned for next year and production targeted for the first half of 2029.

Had Solidigm completed its pre-IPO and IPO as planned, securing the necessary funding would have been relatively straightforward. Industry estimates had pegged Solidigm's market capitalization at around $100 billion, with roughly $10 billion expected to be raised through the public offering.

With equity capital markets now off the table, the more likely paths are corporate bond issuance or bank borrowing.

Issuing corporate bonds on its own, however, would require preparation. Solidigm has yet to obtain a credit rating from a global rating agency, and securing an investment-grade rating of BBB- or above would be essential to reliably attract investors in global bond markets.

The experience of larger NAND peers Kioxia and SanDisk suggests it would be premature to assume Solidigm could quickly obtain an investment-grade rating.

SanDisk posted sales of $14.9 billion and net profit of $10.5 billion in the first half of this year, yet holds ratings of BB+ from Fitch and Ba1 from Moody's — both below investment grade. S&P has assigned it BBB.

Solidigm — operating as SK hynix's NAND product solutions business — recorded sales of 12 trillion won and net profit of 6 trillion won in the first half of this year, with a debt-to-equity ratio of 141 percent at the end of the half. Despite the recent run of strong earnings, credit rating agencies are applying a more conservative lens to Solidigm, citing its concentrated exposure to the NAND segment and the cyclical nature of the memory chip market.

If direct debt capital market financing proves difficult, SK hynix participating in a capital increase is also seen as a strong possibility. Earlier this year, SK hynix announced plans to transform SK hynix NAND Product Solutions — Solidigm's parent company — into an AI company, disclosing a $10 billion capital contribution plan.

In January, SK hynix carved out Solidigm's NAND operations from SK hynix NAND Product Solutions and made them a separate subsidiary. The remaining entity was designated to invest in the US AI ecosystem, with the $10 billion to be disbursed through capital calls as needed.

That approach, however, could weigh on SK hynix's free cash flow. Channeling funds into a subsidiary leaves less cash available for shareholders, analysts note. SK hynix has set a shareholder return policy of distributing at least 50 percent of free cash flow through next year.

SK hynix had itself cited cash flow as one of the reasons it originally explored an IPO for Solidigm. "Attracting outside capital through an IPO would increase SK hynix's consolidated cash flow, allowing us to simultaneously secure capacity for facility investment and shareholder returns such as dividends and share buyback and cancellation," the company said.

"Although we have suspended our review of the pre-IPO and IPO, expanding Solidigm's production capacity and strengthening its competitiveness remain important priorities," it added. "We will continue to explore a range of options — examining the timing, scale and financing method of investment — to enhance both Solidigm's growth and the interests of existing shareholders."


jeongwan@heraldcorp.com