SK hynix Cancels Solidigm IPO to Pay Cash for New U.S. Plant

SK hynix announced on Friday morning that it is abandoning its plan to take its U.S. storage subsidiary Solidigm public. The company cited unfavorable stock market conditions and recent declines in semiconductor share prices as the reasons for the decision. While the initial public offering is off, SK hynix confirmed it will still proceed with building a new manufacturing facility in the United States.

The subsidiary specializes in high-capacity data center drives using 3D QLC NAND memory. As artificial intelligence infrastructure expands, demand for this specific type of storage is rising faster than Solidigm's current output can handle. A new American plant would help meet that demand while also strengthening SK hynix's domestic manufacturing footprint.

The company had previously evaluated several ways to pay for the expansion, including direct investment, pre-IPO funding, and a full listing. An offering would have provided outside capital without increasing debt. It also would have allowed the company to separate Solidigm's valuation from its own market capitalization. Proceeds from a sale could have funded dividends or share buybacks.

However, increased market volatility and a correction in chip stocks changed the calculus. SK hynix stated that current conditions would prevent Solidigm from achieving a valuation that matches its growth potential. Consequently, the company ended its review of both the financing round and the listing. It will continue to explore other funding methods for the project.

The move raises questions about the cost burden on SK hynix, as modern 3D NAND plants can cost tens of billions of dollars. Enterprise SSD demand is at a record high, but outside funding would have reduced the strain on the parent company's balance sheet. Keeping the cash internally might limit capital available for other projects.

One factor in the decision appears to be the strong profitability of the storage sector. Micron's enterprise storage division recently reported a 90% non-GAAP gross margin. Solidigm, which holds a 21.1% share of the enterprise SSD market with its parent, likely earns comparable or higher margins. If these profits continue for the next few years, the unit can generate substantial cash flow for the new plant.

SK hynix has not disclosed the size, cost, or construction timeline for the new facility. The company intends to fund the expansion through a mix of internal cash and debt, though it has not specified the exact ratio. Full ownership of the subsidiary allows SK hynix to retain all future profits without selling equity at a valuation it considers too low.