CXMT's 4F Disrupts Global Memory Market; Goldman Sachs: Market Reaction May Be Overdone, Samsung and SK Hynix Valuations Look Increasingly Attractive

Goldman Sachs Group, Inc. stated in a research report released on October 16 that memory chip manufacturer CXMT Corporation (688825) has made progress in a new-generation DRAM memory cell architecture, triggering concerns across the global memory chip industry about the future competitive landscape. Since the relevant news was announced, shares of major memory chip companies including Samsung Electronics, SK Hynix (SKHY.US), and Micron Technology, Inc. (MU.US) have fallen sharply, with the combined market capitalization of six major memory manufacturers evaporating by approximately $738 billion. However, Goldman Sachs Group, Inc. believes that although ChangXin Memory Technologies is rapidly expanding production capacity, the market may have overestimated its ability to catch up with South Korean leaders in advanced DRAM and high-bandwidth memory (HBM) in the short term. On October 10, reports disclosed that ChangXin Memory Technologies is advancing a new DRAM memory cell architecture called 4F. The company's president also stated that it plans to launch new server memory products based on the 4F architecture by the end of 2026. This news triggered a sharp correction across the global memory chip sector. According to Goldman Sachs Group, Inc. statistics, between October 1 and 15, Samsung Electronics shares fell 20%, SK Hynix dropped 25%, Micron Technology, Inc. declined 11%, SanDisk (SNDK.US) fell 11%, Kioxia dropped 26%, and ChangXin Memory Technologies itself also declined 15%. The combined market capitalization of these six companies shrank by approximately $738 billion. Goldman Sachs Group, Inc. pointed out that ChangXin Memory Technologies' technological progress was not the only reason for the memory stock decline. During the same period, the market was also affected by AI infrastructure financing risks, credit market concerns, and U.S. inflation data exceeding expectations. Particularly noteworthy is that NAND flash memory manufacturers Kioxia and SanDisk, which have little connection to 4F technology, also suffered significant sell-offs, while DRAM spot prices continued to rise during this period. This suggests that the memory stock correction may reflect more of a shift in market sentiment rather than a clear deterioration in industry fundamentals. 4F Architecture Expected to Increase Memory Density, but Mass Production Still Faces Challenges 4F is one of the important development directions for next-generation DRAM technology. Traditional DRAM typically uses a 6F memory cell layout, while the 4F architecture optimizes the memory cell structure to reduce the footprint of a single memory cell to 2F2F, thereby enabling more memory cells to be integrated within the same chip area and increasing memory density. Theoretically, all else being equal, the 4F memory cell area is approximately one-third smaller than 6F, helping to increase storage capacity per wafer. Goldman Sachs Group, Inc. believes that the 4F architecture has special significance for memory manufacturers affected by advanced semiconductor equipment export restrictions. Due to restrictions on obtaining ASML Holding NV ADR (ASML.US) advanced extreme ultraviolet (EUV) lithography equipment, manufacturers find it difficult to rely entirely on shrinking process feature sizes to increase DRAM density, and the 4F architecture provides an alternative technological path. ChangXin Memory Technologies plans to combine vertical surrounding gate transistors (VSG) and wafer-to-wafer (W2W) hybrid bonding technology to improve memory cell leakage issues and allow memory cells and control circuits to be manufactured separately. However, this technical approach also brings new manufacturing challenges, including the consistency of vertical transistors, the charge retention capability of storage capacitors, interference between dense wiring, and the high-precision alignment required for hybrid bonding. Goldman Sachs Group, Inc. warns that these technical challenges may drive up manufacturing costs and reduce yields, thereby offsetting some of the benefits brought by increased memory density. The firm believes that based on currently disclosed information, ChangXin Memory Technologies' 4F product appears to still be in the design stage, with a target of entering the sample stage by the end of 2026. Even if progress can be made as planned, subsequent customer certification and high-yield mass production will still face greater challenges. Samsung and SK Hynix Simultaneously Pursuing 4F, Advanced Process Gap Remains Significant It is worth noting that ChangXin Memory Technologies is not the only manufacturer advancing 4F technology. According to local media reports cited by Goldman Sachs Group, Inc., Samsung Electronics has successfully manufactured functional sub-10nm DRAM chips using the 4F architecture and vertical channel transistor (VCT) technology, and plans to complete development of 10a DRAM based on the 4F architecture by the end of 2026, conduct customer certification in 2027, and achieve mass production in 2028. SK Hynix has also incorporated the 4F architecture into its next-generation DRAM technology roadmap and verified the read/write functionality of related technology through test arrays in July 2026. Goldman Sachs Group, Inc. believes that the key to determining the commercial value of 4F technology is not whether it can be achieved in the laboratory, but whether it can achieve competitive yields, costs, and economic returns in large-scale production. From the perspective of existing technology levels, South Korean memory manufacturers still maintain their lead. Goldman Sachs Group, Inc. points out that Samsung Electronics and SK Hynix currently concentrate their DRAM capacity mainly on the 1b process node and are gradually transitioning to the more advanced 1c node. In comparison, ChangXin Memory Technologies currently still focuses primarily on 1z node products and is expected to continue relying mainly on this process in 2027. As advanced DRAM processes increasingly depend on EUV lithography technology, the lack of related equipment may limit ChangXin Memory Technologies' pace of advancing to advanced nodes such as 1b and 1c, and bring additional cost pressure. ChangXin Memory Technologies' 2028 Capacity Expected to Grow 77%, but Still Difficult to Meet Domestic Demand Despite the remaining gap in advanced technology, Goldman Sachs Group, Inc. acknowledges that ChangXin Memory Technologies' progress in capacity expansion may exceed previous market expectations. The firm estimates that by the end of 2026, the monthly DRAM wafer capacity of Samsung Electronics, SK Hynix, and ChangXin Memory Technologies will reach 770,000, 660,000, and 290,000 wafers, respectively. By the end of 2028, ChangXin Memory Technologies' monthly capacity is expected to further grow to 513,000 wafers, an increase of 77% from the end of 2026. During the same period, Samsung Electronics' monthly capacity is expected to grow 21% to 930,000 wafers, and SK Hynix's to grow 17% to 770,000 wafers. This means that ChangXin Memory Technologies' capacity growth rate will be significantly faster than that of the two South Korean leaders, and the capacity gap between the two sides is expected to gradually narrow. However, Goldman Sachs Group, Inc. emphasizes that even under the above optimistic capacity expansion assumptions, by 2028, ChangXin Memory Technologies is still expected to meet only about 50% of domestic DRAM demand and 40% of HBM demand. Therefore, a considerable portion of China's memory chip demand will still need to rely on other suppliers, and Samsung Electronics and SK Hynix are still expected to obtain important business opportunities in the Chinese market in the future. Higher Technical Barriers in HBM Make It More Difficult for ChangXin Memory Technologies to Catch Up Driven by rapidly growing AI demand, HBM has become one of the core areas of global memory chip competition. Goldman Sachs Group, Inc. believes that compared with traditional DRAM, ChangXin Memory Technologies will face greater challenges in narrowing the gap with South Korean leaders in the HBM field. HBM competitiveness depends not only on the DRAM chip itself, but also involves advanced packaging technology and the manufacturing capability of the base logic die at the bottom of the memory stack. As HBM technology continues to upgrade, base logic dies are gradually adopting more advanced foundry processes. For example, the base logic die for Samsung Electronics' HBM4 product has adopted a 4-nanometer process. Goldman Sachs Group, Inc. points out that if ChangXin Memory Technologies hopes to develop competitive next-generation HBM products, domestic foundries will also need to have the capability to mass-produce advanced-process base logic dies. However, because advanced semiconductor manufacturing equipment remains subject to export restrictions, the supply capability of related base logic dies may become an important bottleneck for ChangXin Memory Technologies in catching up with global HBM leaders. Goldman Sachs Group, Inc. Is Bullish on Samsung Electronics and SK Hynix, Believing Market Pessimism Is Excessive Regarding the recent sharp correction in global memory stocks, Goldman Sachs Group, Inc. believes that the market may have correctly recognized the competitive pressure brought by accelerated capacity expansion by memory manufacturers, but at the same time overestimated their ability to achieve advanced technological breakthroughs in the short term. The firm points out that Samsung Electronics' current share price corresponds to expected price-to-book ratios of approximately 1.2 times and 0.9 times for 2027 and 2028, respectively, while SK Hynix's are approximately 1.4 times and 0.9 times, respectively. In the view of Goldman Sachs Group, Inc., the two companies' 2028 expected price-to-book ratios have fallen below 1 times, meaning the market has in effect already priced in a pessimistic scenario in which the memory industry may enter a downturn in 2028. But this differs significantly from Goldman Sachs Group, Inc.'s judgment that memory industry prosperity is expected to remain elevated for a longer period. The firm believes that from the perspective of fundamentals and valuation, the current risk-reward ratio for Samsung Electronics and SK Hynix is attractive. Goldman Sachs Group, Inc. maintains a "Buy" rating on both companies, with a 12-month target price of 500,000 Korean won for Samsung Electronics common shares and 3.5 million Korean won for SK Hynix. However, the firm also cautions that although the relevant stock valuations are already attractive, catalysts to drive a rapid short-term share price rebound may still be limited.