China fire rattles world chip supply chain

Sep 12, 2013 by Amanda Wang

A fire at a giant Chinese factory making almost one sixth of the world's supply of a key high-tech component shows how vulnerable global manufacturing chains can be to an unexpected event, analysts say.

The vast SK Hynix facility in Wuxi city produces dynamic (DRAM) chips, used to store data in personal computers and mobile devices such as smartphones and tablets.

The South Korean firm is the world's second largest manufacturer of DRAM chips, and says it has a 30 percent market share, with the factory in eastern China accounting for half its output.

Foreign firms have flocked to China, the workshop of the world, to take advantage of cheap labour, good infrastructure and accommodative .

Economies of scale gained through massive factory complexes help lower costs, but also bring with them risks should a company rely on a limited number of plants.

The scale of production now means that a fire or strike taking one factory out of action can reverberate around the world.

Hynix—whose customers include smartphone giants such as Samsung and Apple, which has just introduced two new iPhones—has only one other facility producing DRAM chips, in South Korea.

Partial production in Wuxi resumed three days after the September 4 blaze, which was reportedly caused by a , but a spokesman at the company's headquarters told AFP: "It's still too early to give the estimate of the damage and to predict when full operations may resume."

Analysts say such supply chain shocks can push up prices and potentially delay shipments for finished products.

"As global smartphone shipments are at a high level...supplies (of ) are sought-after," said Wang Jun, of consultancy Analysys International.

"Hynix is in a relatively advanced position in the global memory chip market, so even a single incident at one plant will have a ."

Chip values spiked after the fire and are expected to remain buoyant, according to analysts.

"Memory chip prices surged mainly because of expectations" of short supply, said Kevin Wang, director of China services at market research firm IHS iSuppli. "Prices will likely remain on an upward trend towards year-end."

A huge shortage of memory chips was unlikely in the next two months because of high inventories, he added, but the longer-term impact would depend on how soon Hynix could resume full production, which could take up to four to six months.

In July Hynix posted record second quarter profits on the back of robust chip demand and strong semiconductor prices.

Its operating profit for April-June jumped to 1.1 trillion won ($1.0 billion), a sharp increase from 5 billion won a year earlier.

No smartphone producers are known to have announced delays yet due to the fire, but analysts said it would inevitably have some impact.

"Mobile phone producers related to Hynix will surely be affected, but shipments will gradually stabilise as other suppliers in the global will come in and fill the gap," said Wang Jun.

Global shipments of smartphones jumped 52.3 percent annually to 237.9 million units in the second quarter this year, the strongest growth in more than a year, according to market intelligence firm International Data Corporation (IDC).

IDC has forecast 40 percent annual growth in worldwide smartphone shipments to over one billion units this year.

But such explosive growth assumes other suppliers can meet demand for DRAM chips to fill the gap left by the Hynix fire, analysts said.

Explore further: S. Korea's Hynix posts record operating profit

add to favorites email to friend print save as pdf

Related Stories

Hynix Semiconductor 1Q profit falls 66 percent

Apr 28, 2011

(AP) -- Hynix Semiconductor's quarterly profit fell 66 percent as sales declined and memory chip prices remained weak, though the company said business conditions should improve in the second quarter.

S. Korea's Hynix swings to red in Q4 on poor demand

Feb 02, 2012

South Korea's Hynix Semiconductor, the world's second-largest maker of memory chips, said Thursday it swung into the red in the fourth quarter as chip prices fell on weak demand for personal computers.

Samsung's operating profit up 53 percent in 1Q

Apr 05, 2013

Samsung Electronics Co. said its operating profit last quarter rose 53 percent over a year earlier, outpacing expectations for what's normally a slow time for consumer electronics sales.

Recommended for you

Zynga founder Pincus leaving operations role

10 hours ago

Online game maker Zynga says company founder Mark Pincus is stepping down as chief product officer, less than a year after he was replaced as the company's CEO.

Amazon Prime wins streaming deal with HBO

13 hours ago

Amazon scored a deal Wednesday to distribute old shows from premium cable TV channel HBO to its monthly Prime subscribers, landing a blow on rival Netflix in the streaming video battle.

LinkedIn to anchor new San Francisco high-rise

23 hours ago

San Francisco Mayor Ed Lee says the professional networking site LinkedIn will expand its presence in the city by anchoring a high-rise office building under construction.

User comments : 0

More news stories

Is nuclear power the only way to avoid geoengineering?

"I think one can argue that if we were to follow a strong nuclear energy pathway—as well as doing everything else that we can—then we can solve the climate problem without doing geoengineering." So says Tom Wigley, one ...

US urged to drop India WTO case on solar

Environmentalists Wednesday urged the United States to drop plans to haul India to the WTO to open its solar market, saying the action would hurt the fight against climate change.