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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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RE: They were right about the prices
By ChipDude on 8/7/2007 12:35:03 AM , Rating: 4
Fabs cost multi-billions and run 7x24 to get the most out of them before they get outdated a couple years later.

The equipment in them are very touchy. Most equipment has lots of backup to survive small power bumps and such.

But if your primary feed from a central station goes no amount of local backup can cut in. There is a reason that fabs are built where there is a good reliable source of electricity.

A few batteries, solar panels, even local generators don't provide enough for just moving the air in a fab much less all the tools.

Its the worst nightmare for a fab and its engineers to lose power. You dust the tools, dust the fab, and the steppers if you lose temperature in them can take weeks if not longer to get them back, provided you don't crash the stages. Best case you lose a few wafers actual the worst case it could be everything.

Samsung should consider itself lucky! NOBODY does this to themselves. Nothing is more expensive then an idle fab that is depreciating thousands by the second then one not producing revenue. Is it no wonder that even in overcapacity everyone runs fabs flat out vs. shutter them to prop up prices. You guys who think this is some devious plot don't understand the business!

By Xenoterranos on 8/7/2007 11:49:37 AM , Rating: 2
I worked at a company with many large power hungry machines that needed to operate 24/7 (medical industry). They had no less than 6 of these just in case (maybe not that exact one, but you get the picture). One of them was always running directly into a giant UPS so that they would have time to turn on the rest of the generators in case of a full power outage.

Now, I'm not saying that it wouldn't be ridiculously expensive, but it is possible to have 100% power backup for some length of time. Maybe they did, does anyone here know for sure? I'm kind of a geek for independent power systems and would actually like to know!

RE: They were right about the prices
By Pwnt Soup on 8/7/2007 7:14:20 PM , Rating: 2
i work in the HVAC industry and have a few data centers as customers. They all have 100% backup power on hand 24-7-365, its factored in the cost of business ownership. realizing the fabs have much greater energy needs and they are just as critical I would think they would have either co-generation plants or full backup power at hand. just like hospitals, data centers and other life and death or critical aplications. if they dont, they are getting estimates rite now for backup power i would bet. either way, we the consumers will pay for it.

RE: They were right about the prices
By ChipDude on 8/7/2007 8:29:35 PM , Rating: 2
Its sounds simply, with so much at stake in such a huge investment it seems simple enough to have a few generators and such to backup power. The power usage of fabs are huge, ever tool has pumps, cooling, heating, then you have all the computers that run the place, fans to push tons of air thru it by the minute, automation/robotics and everything else. The simplest analogy would be to expect a major automobile plant to have backup power to run the place for a few days if they lost the utility. Most fabs I've been to have multiple feeds and backup from the local utilities but $hit happens. And Samsung I'm sure will soon be commission some studies on the pros and cons of putting so much production in one place vs the cost of spreading it out a bit. Of course in a small country like Korea that is limited.

RE: They were right about the prices
By Eskimo on 8/7/2007 11:10:23 PM , Rating: 2
You are absolutely correct ChipDude. That's likely one reason Samsung recently completed construction of a $3.5 billion fab in Austin, Texas to diversify NAND flash production. As you mentioned power loss to a fab is a very serious problem and I wouldn't fault any analyst for predicting the impact they did. Keep in mind when power for an extended period of time you don't just lose the equipment processing the wafers but you lose the cleanliness of the cleanroom in which they are fabricated. With loss of laminar air flow it's extremely hazardous to the functionality of any wafer not sealed from the cleanroom environment.

By Pwnt Soup on 8/8/2007 8:04:45 PM , Rating: 2
yes i see your points, however, 43 million in losses can motivate a company too consider a cogen plant and/or other alternitives. if energy costs are a big factor then it makes even more sense too have your own power plant.

"And boy have we patented it!" -- Steve Jobs, Macworld 2007

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