Why SK hynix is expanding its NAND factory — the answer is in its securities filing

The AI boom has sent NAND flash memory prices soaring, but SK hynix is quietly struggling — bound by a Chinese regulatory price cap that prevents it from raising prices for products sold in the country. Industry observers say this China risk is one of the reasons SK hynix chose Cheongju, South Korea, rather than China, as the site for its first NAND factory expansion in a decade.

In a securities registration statement filed with the US Securities and Exchange Commission for an American depositary receipt listing, SK hynix disclosed that China's State Administration for Market Regulation approved its acquisition of Intel's NAND flash memory business unit with conditions. The regulator, it said, required the company from December 2021 for five years to maintain reasonable pricing policies and production levels, and to support the entry of third-party competitors into China's enterprise SSD market.

The filing added that "given the current outlook for strong demand for NAND flash memory products to continue throughout 2026, we expect the obligation to maintain reasonable pricing policies will constrain our ability to significantly raise prices for NAND products."

SK hynix acquired Intel's NAND flash business in October 2020 for about 10 trillion won ($6.65 billion), a deal that included a NAND flash memory production facility in Dalian, China. The acquisition vaulted SK hynix to second place globally in the NAND segment. According to market research firm Counterpoint Research, SK hynix held an 18 percent share of the global NAND market in the first quarter of this year, trailing only Samsung Electronics at 29 percent.

The Chinese government, however, invoked antitrust law to attach several conditions to the deal: SK hynix may not sell enterprise solid-state drives supplied to the Chinese market above the average price recorded in the 24 days before the approval date; it must facilitate the entry of third-party competitors into the SSD market; and it must continuously increase SSD output over the following five years.

Industry sources say SK hynix's Dalian plant accounts for about 30 percent of its total NAND flash output and is the only SK hynix fab producing QLC (quad-level cell) NAND. As AI data centers have multiplied and enterprise SSD demand has surged, the Dalian fab's strategic importance has grown — yet the Chinese price cap is widely believed to have limited the company's ability to raise product prices and constrained its profit margins.

With the five-year conditions set to expire at the end of this year, SK hynix is expected to apply for an exemption. The company stated in its SEC filing that after the five-year period expires, it may apply for an exemption from the conditions, and that China's State Administration for Market Regulation will decide whether to grant it based on the competitive landscape of China's enterprise SSD market at that time.

However, a separate securities filing submitted to South Korea's Financial Supervisory Service through DART warned that "as the expiration of the obligations is imminent, the manner in which we operate our China eSSD business may change depending on the outcome of the exemption application, and if the exemption is denied or additional conditions are imposed, there could be a negative impact on our business and operating results."

This geopolitical risk is seen as another factor behind SK hynix's decision to build its next NAND fab in Cheongju rather than China — its first such expansion in a decade. The company plans to invest 80 trillion won to construct a new NAND production facility, M17, in Cheongju, with ground-breaking scheduled for next year and operations targeted for the first half of 2029. The last time SK hynix announced a NAND fab investment was in December 2016, for M15.

SK hynix President and CEO Kwak Noh-jung said at a national briefing on advanced industry development in the Chungcheong region on July 2 that "as physical AI follows agentic AI, the sectors and demand where NAND is applied will continue to expand." He added that "NAND supply is tight, making expansion necessary not only for DRAM but for NAND as well."

KB Securities forecasts SK hynix's operating profit this year will reach 290 trillion won, with the NAND segment contributing 60.4 trillion won. That would represent roughly a 30-fold increase from the 2.04 trillion won in NAND operating profit the company recorded last year.