⚠ Scaling Is Running OutModerate threat

SK hynix (SKHY) — threat to the moat

The industry's oldest answer to price deflation is weakening -- which supports prices and simultaneously flattens the advantage of being the best manufacturer.

For four decades the memory industry's answer to price deflation was to shrink the cell. Prices fell, costs fell faster, and the business survived. That mechanism is weakening.

Acquisitions of property, plant and equipment, first half (₩ trillion)₩10.6TH1 2025₩18.3TH1 2026SK hynix semi-annual business report, H1 2026, cash-flow statement
Up 73% in a year: each generation now costs more capital per bit.

DRAM scaling has become materially harder — the capacitor in each cell has to hold charge, and there is a limit to how small it can be and still do so. Each successive node delivers less density improvement for more capital and more process complexity than the one before.

The consequence is that cost reduction increasingly has to come from somewhere other than lithography: stacking, packaging, architectural changes — the route NAND already took from 176 layers to 238 and then 3211. Those are real levers and they are more capital-intensive and less reliable than the shrink that used to be routine.

For a producer this cuts in an unexpected direction. Harder scaling slows supply growth industry-wide, which supports prices — the current environment is partly that. It also means the cost curve flattens, and a flat cost curve reduces the advantage of being the best manufacturer.

Watch bit supply growth industry-wide. Structurally slower growth is good for price and bad for the argument that manufacturing skill is decisive.

References
  1. ReportedNAND moved from 176-layer technology to 238 and then 321 layers.
    SK hynix Inc., Form 424B4 prospectus — risk factors and the offering (SEC, CIK 2120882). 'A substantial portion of our sales is attributable to a limited number of customers located in the United States and China. Our two largest customers represented 14.8% and 12.4%, respectively, of our total revenue in the first quarter of 2026 and our largest customer represented 23.9% of our total revenue in 2025.' DRAM products were 77.3% of total sales in Q1 2026 and 77.1% in 2025; NAND flash 22.0% and 21.3%. NAND mass production is transitioning from 176-layer technology to 238- and 321-layer technologies. The offering was 177,900,000 ADSs at US$149.00 each, representing 17,790,000 common shares against 712,702,365 outstanding, each ADS one-tenth of a share; Baillie Gifford Overseas, funds managed by Coatue Management and Situational Awareness Partners indicated a non-binding interest of up to US$7 billion. — FY2025 and Q1 2026 · publ. 2026-07-10 · source ↗
Sources
Generated September 23, 2026