---
endpoint: analytics
pattern: 06 · Bull · bear synthesis
status: done
latency_ms: 222278
conversation_id: f8413f89-62bc-49b4-ae9f-399e6f920f7f
citations: 4
created: 2026-05-31 17:21:57Z
---

# Bear case for Korean memory through the next down-cycle.

# Bear Case: Korean Memory Through the Next Down-Cycle

Korean memory (Samsung Electronics `005930`, SK Hynix `000660`) is currently riding a "super-boom" cycle on AI demand, but the down-cycle setup is increasingly asymmetric. The bear case below combines internal CLSA research and direct disclosures from the companies' own earnings calls — most of the data points are explicitly flagged as risks by management itself or by CLSA's risk paragraphs.

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## 1. The supply side is being structurally re-armed at the precise wrong moment

**1a. HBM capacity additions are running far ahead of demand growth.** CLSA's own forecast has global HBM wafer capacity rising 37% YoY to ~370K wpm by end-2025 — roughly 20% of global DRAM wafer capacity — with **bit-supply growth of 80% YoY in 2025**, vs. demand growth of 90%. The cushion is only 10ppt, and that is on CLSA's bull-leaning math; any slip in hyperscaler capex pushes HBM into oversupply [4]. Investor concern about HBM oversupply in 2025/2026 is explicitly acknowledged as a top sell-side debate [4].

**1b. Hynix has admitted HBM customer-base concentration risk.** "70% of Hynix's HBM supply is going to Nvidia" — i.e. the entire Korean memory bull case rides on one customer's order book [search result, doc 607962817]. CLSA's DeepSeek note frames the downside directly: "at some point in the next 2-3 years it is plausible hyper-scalers might want to improve their offerings by optimisation of already-ordered AI hardware. This could lead to volatility in their capex and hence the demand for HBM. Investors will need to monitor such trends" [5]. The same note warns that until AI capex visibility improves, **"the valuation multiples of memory stocks could come under short-term pressure"** [5].

**1c. The HBM "long qualification" moat cuts both ways.** Bulls argue HBM is custom and irreplaceable; bears note that once a generation is qualified, supply contracts become legally binding — which means **HBM wafer commitments cannot be quickly cut in a downturn**. Hynix has its 2025 HBM "entirely contracted" and "legally binding and irrevocable" [search result, doc 607947394]. That's protection in 2025, but a millstone if hyperscaler capex slows in 2026/27 — every wafer is already committed to a price that was set in the boom.

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## 2. China supply (CXMT and others) — the slow-motion margin killer

**2a. CXMT's capacity is doubling.** CXMT's DRAM wafer capacity is ~180K wpm (10% of industry total) and the company plans to add another 100K wpm by 2025/26, taking China to **~15% of industry total capacity** [3]. Even on CLSA's deliberately conservative yield assumptions, CXMT will account for 4-5% of global DRAM bits in 2024/25 [3]. That share understates the market impact — in the segments where CXMT competes (DDR4, LPDDR4, mobile-grade DRAM), it sets the marginal price.

**2b. The Korean response — abandoning legacy DRAM — is the *trigger* for the bear case, not the cure.** Samsung and Hynix are cutting legacy DRAM bit production from 35-40% of output in 2024 to ~15% in 2025 by converting wafers to HBM/DDR5 [3]. This works if HBM/DDR5 stay tight. If HBM oversupplies (per point 1a/1b), the Koreans will have voluntarily ceded the legacy floor to CXMT and have nowhere to retreat: legacy is gone, premium is glutted, and ASP discovery accelerates downward in both segments simultaneously. **Spot DDR5 ASPs already showed this dynamic in 2H24** — DRAM spot prices entered a downtrend in July 2024 and SK Hynix/Samsung share prices peaked at the same moment [2].

**2c. Export-control whiplash on Hynix's China fabs.** SK Hynix's VEU status protects existing China operations, but management on the 2Q25 call openly addressed investor concern about "the US government tightening export controls on China" potentially forcing growing restrictions on its fab operations there [12]. The bear case is that VEU status is conditional, not permanent — and if it is revoked or narrowed, Hynix's Wuxi fab (a meaningful share of its legacy DRAM base) becomes a stranded asset.

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## 3. The end-market is already telling you the boom is fragile

**3a. The 2024 playbook is the template for the next downturn.** CLSA's own retrospective: "From July [2024], the DRAM spot price entered a downtrend… Continued decline in DRAM/NAND spot price, downward revisions to PC/mobile shipment growth in 2024 and an increase in memory supply from China dampened investor sentiment in 2H. 3Q profit miss by SEC and its failure to gain HBM3E qualification from Nvidia further impacted the sentiment, leading to big correction from which the stocks are yet to recover" [2]. Samsung was down 32% in 2024 with the Korean tech sector underperforming Kospi by 11ppt [2] — and that was in a year where AI capex was *accelerating*. A demand pause produces a much worse drawdown.

**3b. The mobile/PC ASP correction is structural, not seasonal.** "Inventory destocking, weak demand from PC/smartphones and increased DRAM supply from China has weighed on legacy DDR4 pricing" [8]. AI smartphone/AI PC replacement cycles were the bull's promised tailwind, but as of 2025 these "AI features" haven't moved the unit-shipment needle — consumer demand is "moderate growth, reflecting ongoing inflationary and macroeconomic uncertainty" [search result, doc Hynix 2025 Q3 call].

**3c. Samsung's own call acknowledges margin pressure compounded by memory cost.** A UBS analyst on Samsung's 4Q25 call: the "consumer electronics and TV business is facing intense competition, top line margin pressure, perhaps compounded going forward by memory shortages limiting potentially the sets units" [13]. The implication is brutal — Samsung's *own set businesses* (the TV, mobile, and CE divisions, 30%+ of group revenue) are being squeezed by the very memory tightness that helps its DS division. Group-level operating leverage is therefore weaker than the memory-only narrative suggests, and reverses on the downcycle.

**3d. Samsung's 1Q25 confessed HBM demand was deferred.** Samsung's 1Q25 call disclosed "HBM sales decreased quarter-on-quarter caused by impacts of export control on AI chips and deferred demand" [10] — i.e. customers were already deferring HBM orders in anticipation of next-gen products and US export rule changes. That dynamic recurs in every cycle: when customers can defer, they do.

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## 4. Cyclical structure is unchanged — the question SK Hynix CFO was asked, in his own words

The clearest articulation of the bear case is the question Bank of America put to SK Hynix's CFO on the 3Q25 call: **"if there is a boom in the memory cycle, then it will be followed by a downturn"** [11]. The CFO's reply was that "this cycle [is] a bit different from the super cycles that we witnessed in 2017 and 2018" because demand is now broader and AI is "additive" [11] — but that defense is identical in form to every prior cycle's "this time is different" claim, and it relies on three contingent assumptions (hyperscaler capex stays at +35% YoY in 2025 / +20% in 2026 per CLSA [search result, doc 607962817], AI workload growth doesn't decelerate, and Chinese open-source AI like DeepSeek doesn't compress capex per token).

The 2017-18 cycle peaked when supply caught up with demand by ~6-12 months. The 2025-26 cycle has 80% HBM bit supply growth landing into a market where demand growth is only 90% [4], a Chinese DRAM share doubling, and a major customer (Nvidia) representing 70% of Hynix's HBM book.

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## 5. Risk-paragraph synthesis — what CLSA itself lists, repeated in every Korea memory note

CLSA's standardized SK Hynix risk paragraph reads: **"Major risks include the ongoing trade war, geopolitical tension between US and China and delayed demand recovery in the IT and server market. The ongoing inventory correction in the memory market and rapid production expansion at Chinese chipmakers could also pose a threat to Hynix"** [6]. A second variant adds: **"Competitors' faster-than-expected growth in HBM market could pose a threat to Hynix"** [7].

The bear case is therefore not exotic — it is CLSA's own boilerplate risk list, but weighted to high-probability outcomes rather than tail risk:

| Risk | Probability (qualitative) | Magnitude if it hits |
|---|---|---|
| Hyperscaler capex deceleration into 2026/27 | Medium | High — collapses HBM tightness narrative |
| CXMT taking 15%+ share of industry capacity | High (already in plan) | Medium — destroys legacy ASP floor |
| Samsung HBM3E qualification slippage at Nvidia | Medium | High (for SEC specifically) — repeat of 2H24 |
| Hynix-Nvidia customer concentration shock | Low-Medium | Very High — 70% of HBM revenue exposed |
| US export-rule tightening on Wuxi/Xian | Medium | Medium-High — Hynix VEU status conditional |
| HBM4 / 16-Hi ramp execution miss | Medium | High — margin compression in 2H26 |
| Memory-sets margin compression at Samsung | High (already disclosed) | Medium — masks DS strength at group level |

---

## 6. Why the *down-cycle* is likely to be worse this time

Three reasons the next memory downcycle should be *larger in amplitude* than 2022-23:

1. **Capacity reallocation is irreversible on the trip down.** Wafers converted from DDR4 to HBM cannot be re-converted quickly. If HBM demand softens, suppliers cannot dump HBM into spot — there is no spot market for it — and they cannot pivot wafers back to legacy without 6-12 months of qualification. The capacity stays "stranded high" while demand falls.

2. **Earnings have re-rated higher than the cycle averages.** Hynix's HBM revenue share rose from 28% of DRAM in 2024 to a forecast 41% in 2025 [9]. HBM ASPs are 3-5x conventional DRAM. The *operating leverage on the way down* is therefore larger than in any prior cycle, because the marginal HBM dollar earned in the boom converts into a larger marginal $ lost on the down move.

3. **Sets-business cross-subsidy is gone.** In prior down-cycles Samsung's set businesses (mobile, CE) helped smooth group EPS. In this cycle, they are themselves margin-compressed by memory cost [13] — so when memory rolls over, group EPS falls without the set-business cushion that historically supported it.

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## 7. What it would take to invalidate the bear case

For the bear case to be wrong, you would need: (a) hyperscaler capex growth to remain at +20%+ through 2027 (CLSA's bull case [search result, doc 607962817] requires this), (b) HBM4/HBM4E qualification at all three suppliers to slip enough that supply growth materially under-runs the 80% bit-add in 2025 [4], (c) CXMT's DDR5 ramp to remain stuck below 17nm process equivalent due to equipment sanctions [3], and (d) AI smartphone/AI PC content uplift to finally produce the long-promised unit-cycle in 2026. All four need to be right. The bear case requires only one to fail.

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## 8. Trading framework through the down-cycle

- **Preferred short**: Samsung (`005930`) over Hynix on the way down. Sets-business drag [13], HBM3E qualification overhang [2], and lower HBM revenue share (~27% of DRAM in 2025 vs Hynix's 42%) mean less HBM cushion but the same memory-cycle beta. Samsung also has the foundry losses cushion absent.
- **Hynix (`000660`) bear thesis**: long single-customer-risk (Nvidia 70% concentration), expensive on through-cycle P/BV (>1.3x, the 10-year average [9]) into a downcycle where DRAM ASPs roll over.
- **Pair / hedge**: long Hanmi Semiconductor (`042700`, HBM tooling, more defensive on the way down because installed-base maintenance income) vs short SEC/Hynix may overstate the move — Hanmi is itself geared to HBM capex.
- **Down-cycle re-entry signal**: DRAM spot price stabilization + 2 quarters of CXMT capacity additions slowing (i.e. US sanctions actually bite) + hyperscaler capex guidance bottoming. Don't catch it before then; the 2H24 episode showed how fast the stocks can fall once spot rolls over [2].

---

**Sources**
[1] Korea Memory sector outlook (North America marketing feedback) — CLSA (19 Jan 2025) — 607948510LinqAlpha.PDF
[2] Korea Technology (2025 outlook: concerns priced in; redux) — CLSA (2 Jan 2025) — 607947394LinqAlpha.PDF
[3] Korea Technology (2025 outlook) — CLSA (2 Jan 2025) — CXMT capacity / Korean legacy DRAM exposure section — 607947394LinqAlpha.PDF
[4] Korea Technology (2025 outlook) — CLSA (2 Jan 2025) — HBM demand-supply balance section — 607947394LinqAlpha.PDF
[5] Korea memory (DeepSeek implications) — CLSA (30 Jan 2025) — 607949320LinqAlpha.PDF
[6] SK Hynix - HC O-PF (Sticking with HBM guidance) — CLSA (24 Apr 2025) — Investment risks paragraph — 607956758LinqAlpha.PDF
[7] Korea Technology (2025 outlook) — CLSA (2 Jan 2025) — Investment risks (Hynix) — 607947394LinqAlpha.PDF
[8] Korea Technology (2025 outlook) — CLSA (2 Jan 2025) — 2025 memory outlook / DDR4 China supply section — 607947394LinqAlpha.PDF
[9] Korea Technology (2025 outlook) — CLSA (2 Jan 2025) — SK Hynix stock pick rationale section — 607947394LinqAlpha.PDF
[10] Samsung Electronics Q1 2025 Earnings Call — HBM deferred demand commentary
[11] SK Hynix Q3 2025 Earnings Call (28 Oct 2025) — CFO super-cycle Q&A with BofA
[12] SK Hynix Q2 2025 Earnings Call — China fab / US export controls Q&A
[13] Samsung Electronics Q4 2025 Earnings Call (28 Jan 2026) — UBS analyst question on sets-business margin pressure from memory shortages

## Citations

- [10] **Q1 2025 Samsung Electronics Co., Ltd.** · external
- [11] **SK hynix, Inc., Q3 2025 Earnings Call, 28-October-2025 8** · external
- [12] **Q2 2025 SK hynix Inc.** · external
- [13] **Samsung Electronics Co., Ltd., Q4 2025 Earnings Call, 28-January-2026 8** · external

