UPDATE 1-Hynix China plant may restart in 2-3 weeks, maybe earlier -source

Fri Sep 6, 2013 2:24am EDT

* Wuxi plant makes nearly 15 pct of global DRAM chips

* Market worried long shutdown could push up chip prices

* 2-3 week restart estimate is preliminary -source

* Hynix has 2-3 weeks DRAM supply -source

* Little impact seen on mobile DRAM chips -source

By Miyoung Kim

SEOUL, Sept 6 (Reuters) - SK Hynix Inc's fire-hit China plant, which produces half of its computer memory chips, is likely to resume operations within 2-3 weeks or even earlier, said a source familiar with the situation, citing a preliminary estimate of the damage.

Wednesday's fire at the plant of the key Apple Inc supplier has caused concern that a prolonged suspension of operations, such as a shutdown of a month or more, would push chip prices sharply higher. The factory produces nearly 15 percent of global DRAM semiconductors.

"Operations are likely to resume soon... possibly within two to three weeks or even earlier, but it's still an early estimation, and a clearer picture will emerge by next week," the source said.

The source declined to be identified as the plan has yet to be made public.

"Damages are minimal and (chip) wafer losses are quite small, as the fire was mainly in the ventilation area and major production facilities including the clean room were not affected," the source said.

The source said Hynix has around 2-3 weeks of DRAM inventory. That would indicate longer-term global supply is unlikely to be hugely affected if the plant restarted within that time frame and was able to ramp up to full capacity shortly after.

MARKET STILL WORRIED

Underscoring worries about the impact of the fire at Hynix's Wuxi plant, spot prices of DRAM surged 16 percent on Thursday, according to price tracker DRAMeXchange. They traded steady on Friday.

Shares in Hynix also fell further on Friday afternoon despite the source-based outlook, ending down 3.7 percent and taking losses since the fire to 5.4 percent.

"Despite Hynix's assurance, markets are still concerned that it would be difficult to quickly restore operations to full throttle as they'll have to go through testing processes and other procedures to ensure a smooth run," said Peter Lee, an analyst at Woori Investment & Securities.

"Given that they account for over 12 percent of global DRAM supply, supply is likely to become short and prices will rise naturally. Some customers will be stockpiling early," he said.

The source also said little impact was seen on mobile chip supply as the Wuxi plant produces DRAM chips used in computers and servers, and not DRAM chips for smartphones and tablets. That would be a relief for customers such as Apple which is expected to release a new iPhone next week.

Analysts have cautioned, however, that mobile DRAM supplies as well as NAND flash memory chip offerings could be affected if Hynix was forced to shift some of that manufacturing capacity to computer chips to make up for lost production.

The South Korean company says much of the one-off costs of the fire will be covered by insurance.

Analysts have offered mixed opinions about the fire's impact on Hynix's earnings. Hynix reported a forecast-beating record quarterly profit in the second quarter thanks to a near doubling in DRAM chip prices as industry efforts to reduce a supply glut paid off.

Some analysts say production disruptions will likely result in short-term hit to profits but Deutsche Bank said the revenue impact could be neutral as the decline in shipments would be offset by higher chip prices.

For every 5 percent production loss, Hynix needs to see a 10 percent rise in PC DRAM prices to keep its earnings unaffected, they estimate.

Hynix, which commanded 30 percent of the DRAM chip market in the second quarter, competes with bigger rival Samsung Electronics Co and third-ranked Micron Technology Inc. Samsung had 32.7 percent of the global DRAM market in the second quarter and Micron held 12.8 percent, according to DRAMeXchange.

Samsung shares have gained 2.2 percent since Wednesday's close.

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