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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: 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).


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