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© dmitry-bomshtein-dreamstime.com Analysis | September 05, 2013

Fire accident in SK Hynix may lead to potential shortage

SK Hynix has experienced a fire accident yesterday (9/4) at approximately 3:00 PM, causing every part of its production to be halted.
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.

The specific damages suffered by SK Hynix, as of this moment, are still being investigated. However, given that the company’s Wuxi plant (its main DRAM production facility) produces nearly 50% of its monthly 260K wafers, the potential damages imparted on the supply end should not be underestimated. The Wuxi plant is currently responsible for making 100K of SK Hynix's PC DRAM and 30K of its mobile DRAM (including MCP). In the event that the main production procedures are halted, the shipment of nearly 11 million notebooks and 10 million smartphone units will be affected within the span of a month. Such an event is likely to cause the price uptrend of PC DRAM and mobile DRAM to continue throughout 4Q13.

The Wuxi plant currently accounts for more than 10% of the world's DRAM wafer production. A considerable shortage in PC DRAM supply can be expected should SK Hynix's clean room take considerable time to recover. This shortage is projected to give rise to a further price increase as well as restrict the growth in the content per box for PCs. As many of the module manufacturers have already stopped giving their shipping and pricing quotes, the spot market prices have risen by approximately 20%. In the subsequent periods, a major rebound can also be expected for the contract prices. The impact of the fire accident on the spot prices is predicted to become more noticeable following the clarification of the damage details.

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