Solidigm IPO talk divides analysts over SK hynix shareholder value

Speculation that Solidigm, SK hynix's US subsidiary, could pursue a NASDAQ listing has set off a debate in the local brokerage community over what such a move would mean for SK hynix's valuation.

Market participants have been discussing the possibility that Solidigm could list on a US exchange after conducting a pre-IPO round at a valuation of around 50 trillion won ($35.3 billion), raising up to 10 trillion won in the process.

SK hynix addressed the speculation on Aug. 5, disclosing that it is reviewing various options to strengthen Solidigm's competitiveness but that nothing has been finalized.

Despite the clarification, SK hynix's share price tumbled 10.37% the following day, Thursday.

Solidigm is the US entity SK hynix established when it acquired Intel's NAND and solid-state drive (SSD) business.

SK hynix is pursuing a restructuring under which the existing Solidigm entity would be recast as a US "AI company," with the NAND flash business transferred to a newly created subsidiary also to be named Solidigm under that umbrella.

Some in the brokerage industry have warned that if a separate Solidigm listing becomes a reality under this structure, the economic value enjoyed by SK hynix shareholders could diminish.

Lee Young-gon, head of research at Toss Securities, said in a report on Thursday that "a spin-off listing of Solidigm is an unfavorable development for existing SK hynix shareholders."

"If Solidigm lists separately, the value of a business that was previously consolidated within SK hynix will be assessed as a standalone listed company," Lee said. "Once outside investors acquire stakes through the pre-IPO and subsequent public offering, SK hynix's effective economic ownership will be diluted."

In other words, the profits and cash flows generated by Solidigm — which have largely remained within SK hynix's consolidated perimeter — would have to be shared with outside shareholders after a separate listing.

Lee also said the path through which cash reaches SK hynix shareholders could lengthen.

If Solidigm lists as a standalone entity, cash generated there would first remain at that company and would need to travel up to the parent through separate capital transactions such as dividends, he explained.

Lee added that given SK hynix's current financial position, it is difficult to view the purpose of a Solidigm listing as simply raising investment capital.

SK hynix posted record operating profit in the second quarter of this year and raised substantial funds through the issuance of American depositary receipts (ADRs) last month, meaning the group as a whole is not short of investment resources, he said.

Lee went on to say that "SK Group wants to deploy the enormous cash and corporate value that SK hynix generates across the broader group, but the options available to do so are limited," adding that "this appears to be why the group had little choice but to spin off SK hynix's business units, place them under an AI company structure, and bring in capital from other SK affiliates."

"If SK hynix attracts outside capital through Solidigm and secures new growth opportunities, that alone does not necessarily translate into shareholder value destruction," Lee said. However, he added, "because existing shareholders' economic stake will be diluted, a capital allocation framework and shareholder return policy that can offset that dilution must be presented alongside the plan."

Mirae Asset Securities took a more positive view of the prospect of a Solidigm stake sale.

Kim Young-geon, a researcher at Mirae Asset Securities, said in a report on Tuesday that it is "reasonable to approach" the possibility of a Solidigm pre-IPO and US listing "in the context of recouping M&A investment and building up resources for follow-on investment."

Mirae Asset Securities estimated that if SK hynix sells down its Solidigm stake to raise funds, it could secure roughly $15 billion in US investment capacity.

The brokerage also noted that most of the high-performance enterprise server SSD products in Solidigm's lineup rely on SK hynix's own triple-level cell (TLC)-based design and production technology, meaning that even if some Solidigm shares are sold to outside investors, the impact on SK hynix's corporate value would be limited.

"The parent company has built a remarkable track record not only in its core business but also in capital market strategy — through its equity investment in Japan's Kioxia and partial exit, the acquisition of Intel's NAND division, and the largest-ever NASDAQ ADR issuance," Kim said. "If a globally competitive shareholder return policy is added to that, the company's standing is expected to be further strengthened."

A researcher at a major brokerage who asked not to be named told Yonhap that while "it is true that a spin-off listing would dilute the stake value of existing shareholders, the impact on SK hynix's corporate value as a whole would not be significant."

The researcher said the news rattled the share price not so much because the semiconductor industry cycle itself had turned, but largely because it acted as a trigger for accumulated shareholder frustration — fueled in part by reports of HBM price discount negotiations.

The researcher also questioned the timing. "When the ADR was issued, there were dilution concerns, but at least there was the justification of raising large-scale funds," the researcher said. "The Solidigm listing looks more like a move to recoup acquisition costs than a response to a genuine funding need."

"Investors are deeply frustrated that the company is pressing ahead with something that creates market noise without a compelling reason to do so right now," the researcher said.