Samsung confirms 'output adjustment' at Xi'an factory

An aerial view of Samsung Electronics' NAND flash chip-production facilities in the Chinese city of Xi'an / Courtesy of Samsung Electronics

By Kim Yoo-chul

As the Chinese city of Xi'an is further tightening its stiff lockdown measures after a spike of COVID-19 cases, the world's largest memory chip manufacturer has decided to apply plans for "output adjustment" at its $26-billion plant.

In a statement posted on its official website, Wednesday, Samsung said its decision to partially cut down the volume of its memory chip production at its factory in the Chinese city is due to the worsening COVID-19 situation. Shares of Samsung Electronics fell by 1.87 percent to end at 78,800 won on the KOSPI, Wednesday.

The decision could make Samsung's customers feel uneasy, as they may face difficulties planning their procurement activities because the deliveries of chip components aren't in sync with previously set dates. Samsung vowed to respond promptly.

"We have decided to temporarily adjust operations at our manufacturing facilities in Xi'an, China. This decision was made in accordance with our commitment to protecting the health and safety of our employees and partners, which remains our top priority," the Korean technology heavyweight said on its website.

The statement went on to say that it will also take all "necessary measures," including leveraging its global manufacturing network in a way to ensure that its core clients aren't affected.

"The continued lockdown has hit the workforce as well as logistics. The decision was necessary and also inevitable. We can't let facilities be operated by maintaining an emergency mode," said a Samsung official.

Samsung has some 3,300 regular and contract workers combined, at the plant, according to TrendForce, a market researcher.

Markets are now questioning whether Wednesday's announcement will have a significant impact on NAND flash-type memory chip supplies and pricing, because Samsung Electronics, the world's top producer of NAND flash chips, manufactures over 40 percent of its the chips at its facility in the Chinese city.

Its Xi'an factory is the company's only overseas memory chip manufacturing base, where the facilities have a monthly production capacity of 250,000 NANDs, based on wafer input. Its Xi'an fabrication plants account for some 15 percent of the total global NAND output.

"I would go for optimism over pessimism, and my assumption is based on the results of our internal checks for Samsung's supply chain, as I believe Samsung's NAND flash inventory level and lead times are looking stable, in terms of satisfying customers' demand until the second week of January 2022," a senior fund manager at a U.S.-based investment bank in Seoul, said by telephone.

Samsung has two NAND flash chip fabrication lines in Xi'an, with the company using these to manufacture advanced, high-layer count three-dimensional (3D) NANDs that are widely being used for corporate servers and solid state-drives (SSDs), according to company officials. Additionally, Xi'an is also an important place for both Samsung and its rival Micron Technology, as the latter operates memory packaging and testing operations there.

"Despite the announcement, the NAND flash chip spot market is reacting quite cautiously with little fluctuations, and that means the decision has already been factored in, with investors already digesting the news," said a trader who has been tracking the memory chip market.

TrendForce reiterates its forecast that "average (NAND) pricing in the first quarter of next year will fall by 10-15 percent." Samsung was hoping to see an easing of lockdown measures.

However, depending on the situation, it might be necessary for the company to initiate another plan in terms of amicable inventory procurement, if the situation worsens.

Residents in the city of Xi'an are being asked to stay in their homes if they don't have a negative COVID-19 test that is valid within 48 hours after sampling.

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