UPDATE 2: Is a Massive Fire at SK Hynix Wuxi China Facility a Shot Into Shortage?
9/4/2013 by: Gil Russell
A massive fire broke out on Wednesday afternoon at the SK Hynix production facility in Wuxi, China. The local social networks are swarming with pictures and videos of the fire. There are no casualties reported thus far.
Fire at the Wuxi plant in China... can it be an introduction into shortage?
The Wuxi facility is a major producer of DRAM for PCs and LP DRAM for notebook and smart phone applications – it is in the process of ramping up additional NAND-Flash production lines. No estimates of the extent of damage to the facility are available yet. SK Hynix share price rose 0.7% on the Korean Stock Exchange [Kopsi Index] - Micron shares are up 10% in overnight trading. At the same time, a spokesman for SK Hynix stated that the factory should be resuming operations 'in a short time', without any indications when could this happen.
We hope that no injuries resulted because of the fire. Epoxy B fires can make a lot of black sooty smoke but are generally not as bad as they look, though, from initial reports, the fire was bad enough to evacuate and shutdown the entire plant.
Could this be a "Black Swan" event, the beginning of a memory shortage? Stay tuned...
Update (see Update 2 below):
SK Hynix Management – Still Investigating
SK Hynix spokesman Seongae Park said in a Reuters report Wednesday, "Currently, there is no material damage to the fab equipment in the clean room, thus we expect to resume operations in a short time period so overall production and supply volume would not be materially affected.” Further, he commented on images that surfaced online showing thick black smoke emitting from the fab, “please be informed the damage is not as severe as it seems. The smoke was crated because the fire was concentrated in air-purification facilities linked to the rooftop of the fab.”
According to an article published by TrendForce the fire at SK Hynix, Wuxi plant may lead to a “potential shortage” for PC DRAM and LP DRAM for mobile applications.
TrendForce speculates that the conflagration affected equipment within the clean room space within the facility that will require an extended shutdown period similar to incidents experienced by UMC (1998) and Windbond (1996).
The Wuxi facility represents one-half of SK Hynix’ 260K wafer DRAM production, which is 12-15% of the world’s DRAM production. An extended shutdown of the Wuxi facility will result in a shortfall of supply of approximately 11 million notebooks and 10 million smartphones – spot prices have risen 20% indicating a high level of concern over availability. There is a high level of expectation that contract pricing will follow the spot price trend upward.
BSN* Take Two
Who to believe? SK Hynix, not known for its cogent and accurate market communications, is somewhat suspect in that the natural corporate reaction is to deny any problem, no matter how dire – we’ll straighten it out later once we have enough information to feed the spin-masters. TrendForce, on the other hand, has “feet on the ground” in China and has an extensive system of contacts but we must temper that with their natural tendency to speculate.
This might be one of those times when “sitting on your ass and doing nothing till the truth evolves” might not be bad advice though at some point the market may enter into a panic mode - truth and logic then become superfluous in the ensuing mad market scramble…
BSN* Take Three
From what we can tell, SK Hynix has issued a blanket blackout on any material news concerning the fire at their Wuxi, China facility. The company is delaying their assessment of the damage until next week. A report generated today by Seo Won Seok, an analyst at Korea Investment & Securities in Seoul, states that normal production “is expected” to resume in about a month. The TrendForce report indicates a much longer period.
From our market perspective, the situation has all the earmarks of a company stalling for time on reporting the extent of the damage and its affect on the company’s production output and turnover. We think the situation will have a material effect on the company and that the facility will suffer a significant production impairment past the two or three weeks originally reported – long enough to affect the worldwide DRAM supply through the end of the year.
Commodity managers worldwide are now assessing their exposure to the sudden shift in supply and pricing that this portends. Many module suppliers have stopped providing shipping and pricing quotes - spot prices have stayed +20% with the expectation of a major rebound for contract pricing - all signs of a developing shortage.
Shortages, once begun, have a significant psychological component that further complicates the supply/demand model. Commodity users responding to the threat of a shortage increase their inventory levels above what they usually maintain. Large customers, usually protected by long-term supply agreements, lose their upside part of the agreement. Everyone else is put on allocation – a word that hasn’t been spoken for a long, long time. All of this occurs within a period of days – from Wednesday to Friday for instance.
So, if you are a DRAM producer, it’s time to breakout Ella Fitzgerald’s recording of “What a Difference a Day Made” – “twenty four little hours” – the knee pads have been tossed…
SK Hynix, Hynix, DDR4, DRAM, Hynix DRAM, Hynix NAND, Memory Shortage, Memory, Wuxi, Wuxi Fire, Wuxi Factory, Wuxi Plant, China,
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