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Chinese DRAM Plant Fire Continues To Drive Up Memory Prices

Posted by Unknown on from the things-that-go-boom dept.

Nerval's Lobster writes "Damage from an explosion and fire in SK Hynix's Wuxi, China DRAM fabrication plant will drive up global memory prices for PCs, servers, and other devices, according to new reports. Most of the damage from the Sept. 4 fire was to the air-purification systems and roof of the plant, according to announcements from parent company SK Hynix, which predicted the fab would be back to full production in less than a month. The Wuxi plant makes approximately 10 percent of the world's supply of DRAM chips; its primary customers include Apple, Samsung, Lenovo, Dell and Sony. SK Hynix is the world's second-largest manufacturer of memory chips, with a market share of 30 percent, lagging behind Samsung Electronics with 32.7 percent. In an update published Friday, market-research firm DRAMeXchange reported that damage from the fire, smoke and power outages left at least half the plant inoperable or at reduced capacity. The plant is designed to isolate damage in case of disaster so that at least one of its two parallel production facilities can remain online. The facility itself restarted production Sept. 7, according to a statement from the company."

17 of 112 comments (clear)

  1. How oddly reminiscent by ddegirmenci · · Score: 4, Insightful

    of the flood that hit a couple years ago, halting 70(?) percent of HDD production...

    1. Re:How oddly reminiscent by ddegirmenci · · Score: 3, Insightful

      I was actually referring to how stories of artificial price inflation began showing up some months after the said incident.

      But I'll go by your logic now. It's electronics (and PC components), it's in the SE Asia region, it's an unforeseen incident causing a price hike. I see a 100% correlation here.

    2. Re: How oddly reminiscent by ShanghaiBill · · Score: 2

      The answer: To make up for lost profits during downtime production.

      You have no idea how markets work. Producers can't just dictate prices based on desired profit levels. If they could, why would they set prices to maximize profit only after a disaster, rather than all the time?

      That's why too you'll see gas prices go up when a significant tropical system is to hit the U.S.: the anticipation of lost profits.

      Prices go up because demand goes up. Drivers top off in anticipation of future shortages. People often misunderstand these price rises because they think a 10% supply shortage should result in a 10% price change. That is wrong. A 10% supply shortage means prices need to increase enough to cause a 10% drop in demand. For gasoline, short term demand will fall less than 10% even if prices double.

  2. Just in time... by EvanED · · Score: 2

    Just a couple of weeks before I was planning on building a new computer. Wonderful.

    And since the most interesting, useful, and relevant piece of information was left out of the summary, prices have gone up 27% since the fire.

    1. Re:Just in time... by gigaherz · · Score: 2

      So, a factory that manufactures 10% of the DRAM had to stop production for 3 days, and resumed at 50% capacity afterwards. It means only roughly 5% of the total production has been affected, but prices go up 27%.... Yay for capitalism.

    2. Re:Just in time... by DarkOx · · Score: 3, Insightful

      How much do you think prices should go up and based on what. A 5% decline in production does not correlate with a 5% price hike.

      DRAM gets faster and denser all the time you don't produce in much excess over the expected demand. So when 5% of the production goes away 5% of the orders go unfilled, if those customers want to keep building their phones, pcs, etc; they have to compete on price to not be the ones that don't get their memory delivered on time. Margins on all those end products get squeezed and used to chase DRAM, and that is what you fight at the retail level.

      So yes yea capitalism for directing the memory to its most profitable use; if you want to criticize capitalism for something you might want to look at why the supply chain is so remote, thin and vulnerable.

      --
      Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
    3. Re:Just in time... by TheRaven64 · · Score: 2

      If production went down 100% (i.e. no more DRAM is produced), would you expect prices to only go up 100% (i.e. double)? I think that supply-demand curves don't look how you think they look...

      --
      I am TheRaven on Soylent News
    4. Re:Just in time... by ShanghaiBill · · Score: 2

      I never said prices should have gone up 5% only, just 27% seems WAY too much.

      Since 95% of the customers are willing to pay 27% more, why is it too much?

      If you think it is too much, there is a simple solution: Don't buy it.

    5. Re:Just in time... by ShanghaiBill · · Score: 2

      capitalism doesn't work. its a failed concept.

      The market adjustment described in TFA, seems like an example of capitalism working quite well. What alternative mechanism do you propose to allocate limited supplies? A central planning politburo? War?

      we are seeing it really fail in our lifetimes.

      American per capita GDP, adjusted for inflation, has more than quadrupled in my lifetime. That is not a failure.

      nice experiment but can't we declare it a failure and move on to something new?

      What do you propose to replace it with? Kim Jong Un? Raul Castro?

  3. This is why terrorists are stupid. by tlambert · · Score: 4, Insightful

    This is why terrorists are stupid. Damage an air conditioner, unprotected from a parachutist, on the outside of a DRAM plant = billions of dollars of economic damage.

    1. Re:This is why terrorists are stupid. by Sockatume · · Score: 2

      You're assuming that the objective of terrorism is to cause generalised harm. If that was the goal it'd be even easier for them to just stay at home and punch each other in the face.

      A man can dream.

      Anyway, to complete the thought: terrorism is about retribution, and about conveying a political message. Those actions have specific targets, and raising the price of memory does not necessarily affect those targets to the extent or with the specificity demanded.

      --
      No kidding!!! What do you say at this point?
    2. Re:This is why terrorists are stupid. by fuzzyfuzzyfungus · · Score: 2

      No, thats why MONOPOLIES are stupid and should not be helped by the goverment....alas they dont care so yeah... lets blame the terrorists... they are the real bad guys there.

      This is true; but not particularly relevant: RAM manufacture, while it factors into the price of almost everything, is not an industry characterized by particularly brilliant margins or market power. The bigger issue is that semiconductor manufacturing has dangerously high economies of scale (or, alternately, it's damned expensive to spread it out, depending on whether your glass is half full or half empty). This one plant made 10% of the RAM used by the entire world. If Hynix only owned one fab (as opposed to this one and however many others supply the other two thirds of their capacity), they'd be more screwed as a company; but we'd likely still see the same effects. Idle fab capacity is a very, very, expensive thing to waste, so there isn't much incentive to have 'spare' capacity lying around just in case, and a large fab is quite productive indeed, so losing one, even for a modest period, means a significant loss of supply.

  4. Price Increase? BULLSHIT! by mrpacmanjel · · Score: 5, Insightful

    So let me get this straight:

    A single manufacturer (2nd-largest market share though) suffers reduced production of chips (silicon not deep-fried - sort of!)
    Manufacturing plant will be operational within a month
    There are other manufacturers that make the same thing
    Another manufacturer has largest market share
    10% world-wide "shortage" is result

    Global prices have to increase?....Sorry, I smell bullshit.

    1. Re:Price Increase? BULLSHIT! by Xtifr · · Score: 4, Insightful

      It's worse than that. If this plant produced 10% of the world's supply, and its output was cut in half, that means we've only lost 5% of our normal production.

  5. inb4 by Hognoxious · · Score: 4, Funny

    inb4 the idiots who don't understand price elasticity

    --
    Confucius say, "Find worm in apple - bad. Find half a worm - worse."
  6. Scare tactics by jklovanc · · Score: 4, Insightful

    It is strange how a 5% (a plant producing 10% working at half capacity) reduction in capacity can result in large price changes. This is where I have issue with supply/demand pricing. If one can convince buyers something is scarce the price goes up even when the scarcity is not real.

  7. Calls to mind the classic joke by justthinkit · · Score: 3, Funny

    A doctor vacationing on the Riviera met an old lawyer friend and asked him what he was doing there. The lawyer replied, "Remember that lousy real estate I bought? Well, it caught fire, so here I am with the fire insurance proceeds. What are you doing here?" The doctor replied, "Remember that lousy real estate I had in Mississippi? Well, the river overflowed, and here I am with the flood insurance proceeds." The lawyer looked puzzled. "Gee," he asked, "How do you start a flood?"

    --
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