News continues to billow through the press as well as through various rumor mills regarding the SK Hynix fire at their memory fab in Wuxi New District in Jiangsu province, East China. Meanwhile assessments of the full extent of the damage and informed estimates of repair time to resume full capacity production are still forthcoming. Spot market reaction has been swift with a 18-19% rise in DRAM pricing and limited trading due to sellers in wait-and-see mode.
Assessing the event
At this point, the footage of the blazes and dark black smoke from the fab have been the source of the concerns around longer term shortages in an already tight DRAM market. Hynix is the second largest producer of DRAM chips, representing roughly one-third of the industry's supply, and 40% of that supply is produced at the facility where the fire occurred. Roughly 10% of the world's DRAM production comes from this fab in Wuxi, as ComputerWorld underscored. That could add up to a relatively significant supply issue if the damage and repair time were to halt production for any extended time period.
These facts the industry and Hynix agree on. However, exactly what the extent of the actual damage is and the time until production resumption is being hotly debated. Hynix is cited by numerous sources, such as Reuters, as reporting that the fire, while seemingly significant in the verifiable photos, was quickly put out and, according to Hynix represetnatives, did not affect the clean-room nor critical equipment:
"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 that overall production and supply volume would not be materially affected," [Hynix] company representative Seongae Park said in a statement.
"In addition, we expect that the majority of damage will be covered through insurance."
The fire started at around 0750 GMT during chip equipment installation and was extinguished in less than two hours, the company said. The incident caused one minor injury, it said, adding that it is still assessing exact damages.
[…]"While there are some pictures of the fab surrounded by large dark smoke being circulated, please be informed that the damage is not as severe as it seems," Park said.
"The smoke was created because the fire was concentrated in the air purification facilities that are linked to the rooftop of the fab."
Disruption forecasts vary
There are a wide gamut of reports as to the likely extent of the fire damage and the duration of repairs. Additionally, there are questions as to whether the fire occurred in a facility that was being transitioned from DRAM to NAND production, thereby potentially limiting the extent of any DRAM shortage.
One thing is certain, as Bloomberg confirmed today, market prices for DRAM rose roughly 19%, "the most in three years" as a result of the halt in production at Hynix's Wuxi fab. DRAMeXchange's spot market pricing reflects similar trends to Bloomberg's report, but adding that there is a general hesitancy in the market to sell existing DRAM stock due to the ongoing assessments and lack of clarity around the duration and extent of the current disruption.
Hynix statements have underscored that they believe the damage was quickly halted and contained, leading to their expectation of a relatively quick resumption in production, as argued by PCWorld citing a Hynix representative:
“We expect to resume operations in a short time period so that overall production and supply volume would not be materially affected,” the [Hynix] representative said.
On the other hand, TrendForce, parent company of DRAMeXchange, is far more skeptical in their assessment of the disruption. Analysts there argue that it could take up to six months to resume full production, based on what they believe to be comparable incidents in the past:
The fire damages suffered by the company are currently speculated to have originated from either a major manufacturing equipment or one of the CVD machineries inside the wafer facility. Judging by the similar accidents experienced by UMC (1998) and Winbond (1996) and the kinds of insurance payments involved in such events, TrendForce believes it will take at least half a year before SK Hynix's damaged clean room is fully rebuilt. This is expected to affect the Korean company's production procedures considerably in the near future.
Supply chain awaits official reports
Until the official investigation of the cause, damage, and repair expectations are concluded, the speculation will continue to run the gamut. At this point we know that the global DRAM market spiked quickly and significantly today, 18-19%, and that there was limited trading because suppliers are reluctant to sell their stock in an already tight market.
Among the causes of the blaze, there has been relative consistency in the reports that it was due to "a combustible gas leak while installing production equipment. Typically, such a fab is insured and reinsured for both physical and financial damages," to cite Credit Suisse's Asian Daily report on SK Hynix on 9-4-13.
Presently the fab is still shut down, representing a disruption in and of itself because this Wuxi facility is the "main Hynix DRAM production facility [… which] produces nearly 50% of the monthly 260K wafers," as TrendForce underscores.
Credit Suisse's 9-4-2013 assessment of the impact of both short- and long-term shutdowns presents an objective, albeit a necessary wait-and-see, position:
a short-term shutdown (with many precedents) will not likely cause much disruption to the supply chain as wafers in a full production line are partially damaged with minimal amounts of wafer loss. Also, there should be sufficient inventory at the customer level and producer's finished goods level in the global supply chain to cover disruptions of short duration. Much longer duration or complete damage to the fab would clearly impact the global technology supply chain that depends on DRAMs […].
Regardless, the present spot price rise will likely continue as we await official assessments. If the damage estimates and repair time is significant in duration, the impact of this disruption will be reflected in even higher DRAM prices and further tight supply through the remainder of 2013 and likely into the first quarter of 2014. In the long-term shutdown or slowdown scenario, the global DRAM supply will be notably affected simply because of the paucity of high-volume, global producers.