Xian Experiences Pandemic Surge, Samsung And Micron Worried Global Chip Supply Will Be Affected

JAKARTA - Samsung Electronics and Micron Technology, the world's two largest memory chip makers, warned that strict COVID-19 restrictions in the Chinese city of Xian could disrupt their chip manufacturing base in the area.

The city's lockdowns are putting further pressure on global supply chains and adding to a torturous year for exporters who have faced significantly higher shipping costs even as prices for raw materials, including semiconductors, skyrocketed amid the two-year pandemic.

The restrictions could lead to delays in the supply of DRAM memory chips, which are widely used in data centers, Micron said on Wednesday, December 29 as quoted by Reuters.

Tight restrictions, which took effect earlier this month, may be increasingly difficult to ease and have resulted in thinner staffing levels at manufacturing sites, Micron added.

Samsung Electronics also said Wednesday that it will temporarily adjust operations at its Xian manufacturing facility for NAND flash memory chips, which are used for data storage in data centers, smartphones and other technology gadgets.

Chinese media group Yicai reported on Thursday, December 30, that Samsung's semiconductor facility in Xian is currently operating normally. Analytics provider TrendForce also said Samsung's Xian plant is operating without significant disruptions for now and raw material supplies appear to be sufficient, but there could be a slight drop in production if the pandemic is not contained.

"The impact on global supply is manageable, despite the uncertainty," said Yan Chengyin, a consultant and manager at Beijing-based Bayes Consulting, as quoted by Reuters.

“The uncertainty is how quickly the spread of the virus can be stopped and factories can return to work as usual. In our experience, clusters of cases will soon be brought under control in China at foreign companies like Samsung," he added.

The Seoul-based analyst said chips made at Samsung's Xian, NAND plant is mostly shipped to China with limited shipments headed overseas. Some of the biggest demand for the types of chips made in factories comes from Chinese server companies, they added.

TrendForce said smartphone and notebook computer makers may be directly impacted by any changes in operations at its Xian production base, but noted that Samsung's relatively high inventory levels could supply buyers without a hitch in the short term.

Chinese officials have imposed strict restrictions on travel in and out of Xian from December 23, in line with Beijing's efforts to contain the emerging outbreak.

The COVID-19 outbreak in Xian is the largest seen by any Chinese city this year, totaling more than 1.100 cases during the latest turmoil.

"We are leveraging our global supply chain, including our subcontracting partners, to help serve our customers for these DRAM products," Micron said in a blog post.

"We project that these efforts will allow us to meet most of our customer demands, however, there may be some short-term delays as we activate our network," the company said.

Micron added that they are working to minimize the risk of transmitting the virus and have implemented measures including physical distancing and on-site testing and encouraging vaccination.

Samsung's memory chip operation in Xian is one of China's largest foreign projects. The tech giant has two production lines in Xian that make advanced NAND Flash products, which account for 42.5% of total NAND flash memory production capacity and 15.3% of overall global output capacity, according to TrendForce.