It is important to state up front that the final assessments and estimates pertaining to the fire at the SK Hynix fab in Wuxi, China are still pending. That being said, there is more information being circulated about the extent of the damage and potentially better guesstimates regarding what a reasonable time frame for return to normalcy will be. The fact that this Hynix facility produces roughly 10% of global DRAM supply and half of Hynix's monthly production, makes this a significant supply chain event. As a direct result of concerns around DRAM supply, spot market prices have jumped over 30% of pre-disruption levels.
Slightly updated situation
As Hynix's Chief Marketing Officer, Richard Chin, stated in the official letter of Sept. 7:
Restoration of the damaged part of the facility has started.
Regarding the restart of the fab, engineers are still evaluating, but their initial assessment is that there could be the possibility of a partial restart of production lines this weekend. This does not mean, however, that we would be returning to fully normal production.
Important to take-away from this message are three points: (1) the fire was, indeed, contained; (2) repair and restoration work has begun; and (3) it is likely that the return to full production will happen in a three to six month time frame depending on final assessments, actual equipment damage and final government inspection approvals upon restoration. ComputerWorld and DRAMeXchange have reported that "the fire originated in the Chemical Vapor Deposition (CVD) machinery in the FAB's clean room."
Understanding the time estimates
The bottom line is that at best there is about a three-month restoration period to full production capacity and at worst, likely a six-month period. While these delays are not as long as a worst case scenario, the impact of even this partial reduction in supply from Hynix on the DRAM market is significant.
Looking first at the positive points favoring a quicker resumption of production, DRAMeXchange research underscores the importance of the fab's architectural design which favors the quicker restoration timelines:
SK Hynix's Wuxi Plant is based on a special "Gemini" architecture, one which enables the clean room and other important facilities to operate independently. Under such a design, even when a major accident hits an area, a plant would still be able to maintain at least 50 percent of its total production capacity.
On the other hand, smoke damage is notoriously pervasive in any fire situation, and although spared fire damage, DRAMeXchange is cautioning to not underestimate the impact of smoke on the facility's areas:
With the fire originating from within the clean room, the difficulty of recovering the affected half of the capacity in the short term—assuming both the equipment and clean rooms were heavily damaged—are also relatively high.
According to Reuters, Hynix estimates that at least some production will resume in October, after the air ventilation system and facilities have been cleared by inspectors, however, Hynix stated that normal production levels are not expected until November. These are best guesses, of course, and likely more on the optimistic side coming from Hynix itself. However, this does give us the bottom range for possible step-wise resumption of capacity above the remaining line that was not affected at the Wuxi plant.
Meanwhile, Hynix has shifted production of some NAND to DRAM at its facility in Icheon, South Korea in order to ease DRAM shortages due to the fire disruption, as reported by ComputerWorld. Of course, as the article questions, will this move add more upward price pressure to NAND by further limiting production?
Supply impact concerns continue
While the industry is hopeful for a resumption in supply in the next six-months, that is still a significant period of time, particularly during the important lead-up to new consumer electronic device releases, including the Microsoft Windows 8.1 release which is (hoped) to support PC sales.
Adding to the concerns of DRAM shortage due to the present shortage which could potentially move to a more significant shortage should the restoration period for Hynix fall to the longer side of the three to six-month window, Forbes recently supported Objective Analysis' (OA) cautioning that long-term supply should be safeguarded to avoid deficits.
DRAM pricing began to spike very quickly after reports of the fire, having hit over 30% increases in pricing for 2Gbit DRAM chips; some graphics memory chip supply and pricing are also being affected, according to DRAMeXchange. TrendForce, parent company to DRAMeXchange, is in alignment with Forbes and OA's analyses, emphasizing that DRAM shortages are likely to be felt as soon as Q4 of this year, and add the following cautionary industry and commodity note:
A price surge in the DRAM market, additionally, could also become inevitable. TrendForce believes Samsung and Micron will be the biggest beneficiaries of the current situation with SK Hynix, and that the growth and decline of the three major DRAM manufacturers will be considerably affected in the periods to come.