August 3, 2007 / 6:51 AM / 12 years ago

Samsung Electronics chip output hit by power cut

SEOUL (Reuters) - Samsung Electronics Co. Ltd. said on Friday it shut down six of its chip production lines after a power cut at a plant near Seoul, prompting expectations of tighter supply and a rise in prices.

Samsung Electronics' 16 gigabit (Gb) NAND flash memory chips are seen in this picture released by Samsung in Seoul April 29, 2007. Samsung said on Friday it shut down six of its chip production lines after a power cut at a plant near Seoul, prompting expectations of tighter supply and a rise in prices. REUTERS/Samsung Electronics/Handout

The company said it did not expect the overall losses from the outage to exceed 50 billion won ($54.19 million).

Analysts, however, put the potential losses much higher.

Some said the incident could wipe out as much as a month’s worth of Samsung’s total production of NAND flash memory chips, which are widely used for data storage in portable electronics. Samsung had a 44 percent share of the world’s NAND flash market at the end of the first quarter, according to research firm iSuppli.

Shares in rival memory chip makers, such as Toshiba and Hynix Semiconductor Inc., rose as investors expected them to benefit from higher prices. Shares in Samsung, the world’s top maker of memory chips, shed gains of just under 3 percent to end the session flat.

“It is probable that at least half of the chips already in the fabrication process will have to be discarded,” said Lee Min-hee, an analyst for Dongbu Securities.

“Taking into account another two weeks for ramp-up of the lines after cleanup, Samsung could very well lose a month’s worth of chip shipment,” he said.

Lee added that spot price of a benchmark chip had risen by about 9 percent on news of the accident.

“When a line is stopped it has to be stabilized and returned to normal. The NAND flash market is small, and any supply disruption will be reflected in the prices,” said Song Myung-sup, an analyst at CJ Investment & Securities.

STMicroelectronics, Europe’s biggest chipmaker, declined to comment on the outage, as did Qimonda, the world’s third-biggest maker of memory chips by sales.

Infineon, which owns 86 percent of Qimonda, said its core business in telecommunications, automotive and industry chips would be unaffected.

Analyst Scott Geels of Sanford Bernstein said: “I suspect you’ll see a jump on the spot price but especially considering that DRAM is still in quite bad oversupply, the impact will be minor.”

By 1040 GMT, shares in STMicro were down 1 percent, Infineon was flat and the DJ Stoxx European technology index was up 0.6 percent.

Jae H. Lee, an analyst at Daiwa Institute of Research said power outages at chip plants had serious consequences

“When the power goes down, some of the wafers die in the process and they ... become obsolete,” said Lee.

Overall NAND production at Samsung is likely to be particularly affected by the outage in Line 14, an advanced NAND flash line using larger wafers.

A problem at the switch board at a transformer substation led to a power shortage at 2:30 p.m. (0530 GMT), the company said.


Samsung’s Kiheung plant has a total of 11 chip lines, but some of the older lines produce smaller volumes of chips so the impact of the stoppages is difficult to assess.

Several analysts estimated that Samsung’s third-quarter shipments could be cut by as much as 15 percent following the outage.

Any supply shortfall from Samsung could have a ripple effect on the industry as the NAND flash market enters a traditionally high-demand period when makers of electronics gadgets gear up for the holiday gift-giving season.

A week ago, Hynix Semiconductor Inc., the world’s second-biggest memory chip maker, predicted NAND flash shipments would surge by more than 100 percent in the third quarter.

An employee of Samsung Electronics talks on the telephone at a lobby of its main office in Seoul July 13, 2007. Samsung Electronics Co. said on Friday one-third of its lines at a chip plant near Seoul were down after a transformer malfunctioned at 2:30 p.m. local time (1:30 a.m. EDT). REUTERS/Han Jae-ho

Samsung Electronics closed flat at 590,000 won, having fallen from the day’s peak of 607,000 won while Hynix closed 3.6 percent higher at 37,100 won.

Shares in Japanese rival Elpida Memory, which had been trading down 1.9 percent on the company president’s comments to the Nikkei business daily that DRAM price recovery would be limited, reversed that loss to snatch a small gain at one point.

Shares in Toshiba, the world’s second-biggest NAND maker, closed up 3.2 percent.

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