The U.S. Federal Reserve's interest rate hike has raised concerns about global financial tightening, but experts predict minimal impact on South Korea's semiconductor industry. Samsung Electronics and SK Hynix have established a "triple defense" strategy, characterized by robust long-term supply contracts, strong cash liquidity, and a market structure favoring high bandwidth memory (HBM), which can mitigate the effects of high interest rates.
According to industry reports on September 17, the Federal Reserve decided to raise the benchmark interest rate by 0.25 percentage points to a range of 3.75% to 4.00% during its two-day Federal Open Market Committee (FOMC) meeting. This marks the first monetary tightening action in over three years since July 2023.
While this decision signals a renewed phase of global financial tightening, experts believe the repercussions for Samsung and SK Hynix's supply chains will be minimal. The solid contract structure serves as a significant buffer. Typically, interest rate hikes are seen as factors that dampen investment from big tech companies, but a substantial portion of memory orders from firms like Google, Microsoft, and Meta are secured through long-term supply agreements (LTA) lasting up to five years. Due to the nature of LTAs, it is challenging for companies to adjust order volumes or terminate contracts in response to short-term interest rate fluctuations or worsening financial conditions.
Lee Jong-hwan, a professor at Sangmyung University, stated, "Big tech's AI infrastructure investments are not volatile businesses swayed by short-term interest rate policies. The existing LTA volumes alone can sufficiently absorb the short-term performance volatility of domestic semiconductor companies."
Concerns about reduced equipment investment from the supply side are also being alleviated. As of mid-2023, Samsung Electronics and SK Hynix had combined cash and short-term financial assets amounting to approximately 278 trillion won, having added about 117 trillion won in cash over the past six months. Notably, SK Hynix has strengthened its financial health by reducing debt and increasing net cash amid high interest rates.
Despite rising external borrowing costs due to high interest rates, both companies have secured the financial resources necessary to proceed with next-generation process transitions and new factory constructions without disruption.
The supplier-dominant structure centered on high-value-added memory, particularly HBM, is also working in favor of the domestic industry. The surge in demand for HBM for AI servers has led manufacturers to focus on these production lines, maintaining tight supply for general-purpose DRAM as part of a virtuous cycle. Industry analysts suggest that even if certain big tech companies hesitate to make purchases due to the Fed's interest rate hike, the competitive nature of the market makes it difficult for clients to significantly reduce orders.
The Bank of Korea noted in its monetary credit policy report earlier this month that "despite the global tightening trend, the key drivers supporting the solid growth of the domestic economy are strong semiconductor exports and robust equipment investment." It emphasized that structural demand for high-value-added memory, such as HBM, plays a significant role in offsetting the macroeconomic tightening shocks.
Kim Dae-jong, a professor at Sejong University, remarked, "In the fierce competition for AI server dominance, securing a core memory supply chain is a matter of survival for global big tech companies. The macroeconomic challenges posed by the Fed's interest rate hike are unlikely to undermine the strong supply-demand structure and solid performance established by K-semiconductors."
* This article has been translated by AI.
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