Is Samsung’s Chip Output Back To Normal?

Posted by: Ihlwan Moon on August 6, 2007

Samsung Electronics on Aug. 6 claimed that its production stoppage last week at its main plants for NAND flash chips will have little impact on the supply of the chip and on its bottom line. The company controls 45% of the world’s market for NAND chips — used for storing data for digital cameras, music players, handsets and other portable gadgets — and its output failure could create a serious shortage in the industry. To end worries that the company may be losing its groove in its chip business hit hard by falling profitability and intensified competition, it let scores of journalists to tour one of the affected plants.
During the tour, Samsung execs said the total damage from the stoppage caused by a power failure would be limited to around $40 million, far less than up to $217 million estimated by industry analysts. Samsung told reporters that the company could resume normal operations within 24 hours after the power shortage caused by the problematic switchboard at a transformer substation halted production at six chip lines at Kiheung, south of Seoul, on Aug. 3.
President Hwang Chang Gyu told reporters that Samsung’s chip production target won’t be affected by last week’s incident. “We’ll show our performance with the third quarter results,” Hwang said. That’s misleading because memory chip prices hit a bottom in the previous quarter and the chip unit’s $360 million operating profit in the three months through June was the lowest in four years. Many had expect Samsung to double or near-triple the profit anyway.
The more immediate and probably more accurate gauge would be NAND chip prices on the spot market in a week or two. With cross-town rival Hynix Semiconductor doubling its capacity this quarter to increase its global NAND share from last year’s 15%, prices will probably fall later this month unless Samsung fails to meet its output target. Sure, NAND chip demand is on the rise but the consensus is that the rise in supply will slightly outpace increase in demand in late August and September.

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