Update: Plant Fire at SK Hynix May Impact Supply, Pricing

Update 2: In an email statement on Sept. 12, SK Hynix reiterates that the line not effected by the fire at the Wuxi fab resumed operations on Sept. 7. The memory maker also noted that the line impacted by the fire is still undergoing a safety inspection with plans to "complete inspections and full restoration of the air ventilation system and facilities in order to resume production in October." SK Hynix further noted that it "will make every effort to ramp up operations in stages in order to fully recover normalized production level in November.

To minimize DRAM supply disruption, SK Hynix plans to increase its DRAM production at its headquarters location, which will result in a temporary decrease in NAND flash production.

DRAMeXchange, a research division of TrendForce, expects the WIP reconfiguration and manufacturing delays as a result of the clean-up and re-inspection will likely impact at least two months’— or roughly 260K’s—worth of wafer production. DRAMeXchange analysts believe PC DRAM production is the product line most impacted by the fire, and as result, DRAM spot pricing will likely increase higher than 20 percent. Currently, module vendors in the spot market are supplying product in small quantities.

As for the contract market, DRAMeXchange reports that PC OEMs have sent personnel to SK Hynix's headquarters and the Wuxi plant to find out the extend of the damage, and in some cases, are ensuring future supply through help from first tier module houses and Taiwanese DRAM manufacturers. DRAMeXchange said there is a possibility that tightening inventory could start as soon as the fourth quarter if "proper action is not taken." Samsung and Micron will likely benefit the most from the SK Hynix supply situation.

Update 1: In an e-mail statement received on Saturday evening, Sept. 7, SK Hynix states:

"Please be informed that the line which was not affected by the fire in our fab in Wuxi, China has resumed operations from Saturday, September 7, 2013 after completing all safety inspections.

We are continuing our inspection of utilities and equipments to restore the line that was partly damaged by the fire under the cooperation of the Chinese government.

Further, we have dispatched many experts from our headquarters and established a 24 hour restoration system with partner companies. Our plan is to resume normal operations with full production capacity in the shortest time by ramping up operations in stages as soon as the damaged facilities are replaced.

We will continue to make every effort to minimize the impact on supply with our inventories of finished products and completely processed wafers as well as production support from our headquarters.

Once again, we will make our most concerted efforts and concentrate our capabilities to restore the production line and minimize the impact caused by the incident."

Electronics Purchasing Strategies has asked for further clarification on the impact on production and supply.

A fire on September 4 at South Korean-based SK Hynix's Wuxi plant, which is the company's primary DRAM production facility, resulted in a plant shutdown, according to a TrendForce report. The fire may have started in a major piece of manufacturing equipment or one of the CVD machines inside the wafer facility, according to TrendForce.

TrendForce reports that many module manufacturers have stopped providing shipping and pricing quotes and spot market prices have risen by about 20 percent. The market researcher also expects a "major rebound" for contract prices.

TrendForce expects it could take at least six months before SK Hynix's damaged clean room is fully rebuilt, based on similar accidents at UMC in 1998 and Winbond in 1996. Specific damages to the plant are under investigation.

The Wuxi plant produces nearly half of SK Hynix's monthly 260K wafers. This includes 100K of its PC DRAM, and 30K of its mobile DRAM, including MCP, so the supply impact "should not be underestimated," said TrendForce.

TrendForce said if main production is halted, "the shipment of nearly 11 million notebooks and 10 million smartphone units will be affected within the span of a month." The upshot: pricing will rise for both PC DRAM and mobile DRAM throughout the fourth quarter of 2013.

Overall, the Wuxi plant is said to account for more than 10 percent of the world's DRAM wafer production. If it takes a significant amount of time to resume production, TrendForce expects a shortage in PC DRAM supply.

However, Bloomberg News reported that there wasn't any major damage to production equipment, and there was one injury.

SK Hynix has not responded yet to Electronic Purchasing Strategies. An update will be provided when SK Hynix responds.