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Samsung memory factory mishap sends market spinning

On Friday, a power cut at a Samsung Electronics plant near Seoul forced the South Korean memory giant to shut down six of its chip production lines. The outage sparked expectations of decreases in memory supply and higher prices.

A Samsung spokeswoman explained to Reuters that a problem in the afternoon at the switchboard at a transformer substation led to a power shortage. The company’s advanced NAND flash memory lines was one of the lines affected by power issue.

Shares of competing memory makers Toshiba and Hynix gained on the market following the expectations of higher memory prices, while shares of Samsung dipped slightly. Shares major NAND flash memory clients, such as Apple for its use of flash in its iPod music players, also fell on expectations of higher NAND costs.

Although Samsung told the press that it could take up to two days to resume normal operations, the company was able to reach full operation around noon Saturday – making actual damage and losses of the power outage less than originally anticipated. The company now expects to lose 40 billion won ($43.4 million) from the outage.

"Some of the wafers that were being processed when the outage hit can be salvaged, and the potential yield from the recovered wafers was at a good level," said Choi Chang-sik, executive vice president at Samsung's semiconductor division, at a news conference in Kiheung.

In response to last week’s mishap, Samsung said today that it plans to increase production to help make up for lost ground. The company added that it would try to meet its monthly targets in spite of the downtime.

"Regarding any concerns about the lingering impact of this accident, our third-quarter results will show ... we'll do our best to outperform the market's expectation," said Hwang Chang-gyu, the president of Samsung's semiconductor business.

Samsung’s plan of increasing NAND production may have a negative effect on the memory maker’s other product lines. Tom Duong, vice president of business development at Mushkin, believes that Samsung may have to cut back on its DRAM production in order to make up for losses on NAND.

“From my understanding, the lines that are affected are the lines that produce NAND flash. So to subsidize, Samsung will probably have to switch some of their DRAM line to make up for the loss of NAND production,” Duong told DailyTech. “Thus, it will hamper supply of DRAM thus causing an increase in prices.”



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An "accident"
By ChronoReverse on 8/6/2007 6:46:08 PM , Rating: 3
With the current low prices and reports of lowered revenues, I was wondering when an accident would occur to help readjust things.

Maybe I'm just cynical, but the DRAM manufacturers have shown themselves to be rather underhanded.




RE: An "accident"
By KristopherKubicki (blog) on 8/6/2007 7:11:08 PM , Rating: 5
Considering the number of open lawsuits against these guys for price fixing (on both ends), predatory pricing, collusion, kickbacks, options fraud, backdating, predatory takeovers --- couldn't have happened to a nicer bunch of guys ;)


RE: An "accident"
By Samus on 8/6/2007 7:35:17 PM , Rating: 1
hah.


RE: An "accident"
By Christopher1 on 8/6/2007 11:19:05 PM , Rating: 1
With all due respect guys, while the NAND makers are kinda in the category of slime...... this could have happened to anyone. I am also sure that there were some inspectors sent out there to make sure that the power outage was actually an accident.

We had one of these accidents in our country recently, the old USA. If it can happen here, I can believe it would happen in a second-world country.


RE: An "accident"
By masher2 (blog) on 8/7/2007 12:09:35 AM , Rating: 4
I quote you Hanlon's Law, which says, "never attribute to malice that which can be explained by sheer stupidity."


RE: An "accident"
By JackBeQuick on 8/7/2007 1:35:15 AM , Rating: 2
It's not a Law! It's a Razor!!!!


RE: An "accident"
By Shadowmaster625 on 8/9/2007 9:52:56 AM , Rating: 2
What Hanlon failed to realize is that malice is an even more common element of human nature than stupidity.

Most of the time, we dont do stupid things because we're stupid. We do them for other reasons, such as malice.


RE: An "accident"
By tim851 on 8/7/2007 6:45:37 AM , Rating: 4
quote:
If it can happen here, I can believe it would happen in a second-world country.


South Korea is not a second-world country...


RE: An "accident"
By JeffDM on 8/8/2007 7:18:49 PM , Rating: 2
Actually, you are correct, but "first world" "third world" are outdated and not useful terms. "First world" was more or less the US and its allies, "second world" was the Soviet Union and its allies, and "third world" were the unallied countries. I think that would make South Korea a first world nation. I think it somehow had become some connotation of relative affluence, there's some amount of truth to it but it's not quite right.


RE: An "accident"
By porkpie on 8/15/2007 7:33:41 AM , Rating: 2
The politically correct terms now are "developed" and "developing" nations.


RE: An "accident"
By FITCamaro on 8/7/2007 8:09:09 AM , Rating: 2
I worked out at NASA for a summer in college and even there we lost power a few times.

Good old FPL. Known locally as Florida Flicker n Flash.


RE: An "accident"
By webdawg77 on 8/6/2007 7:44:13 PM , Rating: 2
Makes you wonder if some of the "power" company employees were mad at Samsung for some obvious reason :).


RE: An "accident"
By masher2 (blog) on 8/6/2007 7:56:05 PM , Rating: 3
In a tight market, you don't make money by cutting your own output, you gain when the other guys cut theirs.

This outage will cost Samsumg, and put money in the pockets of their competitors. Not exactly what a wise company wishes to do.


RE: An "accident"
By KristopherKubicki (blog) on 8/6/2007 8:13:44 PM , Rating: 2
Of course, the tin-foil-hatter inside all of us would say that Samsung's accident may have had no impact on actual production at all, and that the company made tons of money off the rampant speculation on the spot market since Friday.


RE: An "accident"
By AlexWade on 8/6/2007 10:01:16 PM , Rating: 2
This sounds a lot like the "unplanned" and "accidental" refinery outages that coincidentally all occurred at about the same time. Hold did that affect Big Oil's bottom line? If reducing supply reduces profit, why is anybody who sells oil except the gas station making record profits?


RE: An "accident"
By Dfere on 8/7/2007 8:07:37 AM , Rating: 3
Same argument here Masher began to articulate. You are sort of postulating that by restricting supply, prices increase to the point that total proft increases despite the total number of units sold decreasing. This is a highly elastic relastionship and it does occur in markets. The problem is one manufacturer does not a market make, in this case. Masher is right. One company would not cut its own supply so others in the industry would make more (this is the basis of anti-trust , monopoly and even oligopolic market manouvering which is illegal. (I just had to finally throw in some jargon- I am not a tech head like most of you.. I never get a chance).


RE: An "accident"
By jay401 on 8/7/2007 8:46:35 AM , Rating: 2
Not only that but wtf is with "zomg we're doomed, there will be huge shortages, quick - jack up the prices!"? Dude, power went out for a day or so. Is supply and production so tightly tied to demand for flash memory that it's as volatile a market as oil? Come on now...


RE: An "accident"
By mindless1 on 8/7/2007 12:28:26 PM , Rating: 2
If Samsung can't fill orders, OTHER company's production lines stop (unless they find an immediate 3rd party supply). You can't have many millions in flash memory sitting around for any length of time (as you would need have every other discrete too) more than to fill immediate production demands.

The real impact will depend on Samsung's surplus stock levels at the time. Yes it can raise prices but that doesn't keep those prices from readjusting either.


“And I don't know why [Apple is] acting like it’s superior. I don't even get it. What are they trying to say?” -- Bill Gates on the Mac ads











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