Covid Lockdown in China Threatens DRAM Supply Hiccup

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Samsung and Micron have slowed operations at their memory chip facilities in Xi’an after a Covid outbreak forced the city of 12 million people to go into lockdown on Dec. 23.

“Due to the ongoing COVID-19 situation, we have decided to temporarily adjust operations at our manufacturing facilities in Xi’an,” Samsung said in a three-sentence statement on its website.

“The city’s closure has reduced Micron’s team member and contractor workforce at our Xi’an site, resulting in some impact to output levels of our DRAM assembly-and-test operations there,” Micron said on its website.

Near-term delays in product shipments are possible as Micron activates its supply chain of contractors to make up for possible shortfalls, according to the company. New or more stringent restrictions impacting operations in Xi’an may be increasingly difficult to mitigate, Micron said in the statement.

The Xi’an lockdown is the latest setback to crimp the global semiconductor supply chain. Chip shortages that emerged more than a year ago during the Covid pandemic were worsened by power outages during February 2021 in Austin, Texas, where Samsung, NXP and Infineon have semiconductor facilities. A fire last year at a Renesas fab in Naka, Japan also halted supplies of chips used in automobiles.

China has adopted a zero-tolerance approach to Covid outbreaks that includes lockdowns. After more than 1,000 people in Xi’an tested positive for Covid, the city went into lockdown.

Xi’an accounts for about 15% of the world’s NAND output, according to Jim Handy, an analyst with Objective Analysis. That number is based on estimates of Samsung’s product mix, which the company doesn’t disclose, Handy said. He didn’t have a similar estimate for Micron.

NAND is used in smartphones, solid state drives, USB flash drives and flash cards. All flash applications will be equally impacted as a result of any production decrease, according to Handy.

So far, the impact appears to be minor, he said.

“I haven’t heard anything that leads me to believe that either of these facilities will seriously reduce their output,” Handy said.  “I find it likely that they will continue to produce at their former levels unless the situation gets significantly worse.

A significant shortage can cause prices to increase rapidly.  This happened in 2017 for NAND and 2018 for DRAM when panicking chip buyers in China grew their inventories in response to trade war concerns, Handy said.

He offered examples from the past. Spot DRAM prices zoomed from $2.62 to $6.38/GB, or 144% in 13 months.  NAND had a smaller 50% jump in early 2017 from $0.21 to $0.31/GB.

Samsung probably has its Xi’an campus divided into sections to reduce the risk of a campus-wide shutdown, according to Handy. Employees in one section may be restricted from visiting an adjoining area, even though they are all on the same campus, he added.

Large Asian chip facilities typically include housing for their workers. The Xi’an government probably has let workers in the dormitories continue their normal work as long as they don’t interact with anyone off campus, Handy said.  This would limit workforce reductions, but there’s still the issue of getting supplies and other necessities like food for the workers delivered to on-site cafeterias, he added.

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