[Peace&Chips] Impact of Taiwan Earthquake on Micron... Potential Memory Price Fluctuations

Micron Operates Production Facilities in Northern and Central Taiwan
Wafer Damage and Partial Process Line Impact

Memory Supply Disruption Affects Q2 Prices
Market Stabilization Expected After Recovery

This week, a strong earthquake struck Taiwan for the first time in 25 years since 1999, drawing significant attention from both inside and outside the industry regarding its potential impact on the semiconductor market. The Taiwan production facilities of Micron and Nanya, the 3rd and 4th largest companies in the memory semiconductor market, were affected by the earthquake, leading to forecasts of fluctuations in memory prices in the second quarter. However, based on past cases in Taiwan and Japan, the prevailing assessment is that the long-term impact will be limited.

Damage to DRAM Production Facilities in Northern Taiwan

The magnitude 7.2 earthquake that struck the Hualien area in eastern Taiwan on the morning of the 3rd caused damage to semiconductor production facilities across Taiwan. It affected not only Taiwan's TSMC production facilities, which hold over 60% of the global foundry (semiconductor contract manufacturing) market share, but also the local plants of memory companies Micron from the U.S. and Taiwan's Nanya.

Micron and Nanya are memory businesses that held 19.2% and 1.6% market shares respectively in the global DRAM market in Q4 last year (according to TrendForce), with a combined share of about 21%. Although their influence is not as large as the market leaders Samsung Electronics (45.5%) and SK Hynix (31.8%), if these companies experience disruptions in DRAM production, it could affect overall DRAM price formation.

Micron production facility of the American memory semiconductor company in Taichung, Taiwan / Photo by Micron

Micron currently operates DRAM production facilities in Linkou in northern Taiwan and Taichung in central Taiwan. Recently, as part of increasing cooperation with TSMC, they have been producing high-value-added DRAM such as High Bandwidth Memory (HBM) locally, indicating a high dependence on their Taiwan plants. Nanya mass-produces products based on 20 to 30 nanometer (nm; 1 nm = one billionth of a meter) process technology through its production facility in New Taipei, northern Taiwan.

Market research firm TrendForce stated, "The recent earthquake significantly affected Nanya's New Taipei 3A plant and Micron's Linkou plant." In Micron's case, wafers (semiconductor substrates) were damaged within the Taiwan plant, and some production lines experienced issues. Nanya also suffered considerable damage, including a complete shutdown of one production line.

However, since northern Taiwan, where these production facilities are located, is not the epicenter of the earthquake, the recovery is expected not to be prolonged. TrendForce said regarding Micron's Taiwan production facilities, "They will be fully restored within a few days." They also forecast no changes to Micron's business plans, stating, "Subsequent production, including HBM, will continue in Taiwan."

Market Research Firms Suspend Real-Time DRAM Price Announcements

The memory industry believes that even if the earthquake damage is not severe, it could have a short-term impact on the market. There are forecasts of fluctuations in DRAM prices in the second quarter. Memory prices fluctuate based on negotiations between suppliers and purchasing customers, and since procurement difficulties have arisen on the supply side, the price negotiation environment may change.

KB Securities, in a report analyzing the impact of the Taiwan earthquake on the semiconductor supply chain on the 5th, stated, "Due to the earthquake impact, the leadership in second-quarter DRAM price negotiations is expected to shift towards memory manufacturers." Previously, buyers had a greater influence on DRAM price formation, but after the earthquake, manufacturers are expected to take the lead, potentially causing DRAM prices to rise further.

Micron has suspended DRAM price negotiations due to the earthquake impact. They plan to announce prices after assessing the damage. Samsung Electronics and SK Hynix are also reported to have suspended DRAM price negotiations.

DRAM Exchange, a Taiwanese market research firm that monitors DRAM spot prices, has also stopped publishing prices. Spot prices refer to temporary transaction prices formed at the distribution stage of DRAM by individual clients. DRAM Exchange used to provide real-time DRAM spot prices three times a day on weekdays but has ceased price announcements since the afternoon of the 3rd.

Fortunately, once the damage is repaired, the memory market is expected to gradually stabilize. Based on past industry cases not only in Taiwan but also in Japan, where seismic activity occurred, the impact is not expected to be prolonged. Global credit rating agency Morningstar DBRS commented, "The Taiwan earthquake may cause short-term disruption in the semiconductor sector," but "(the) credit risk of related companies is not significant."

Meanwhile, Kwak No-jeong, President of SK Hynix, expressed condolences to Taiwanese customers and partners who may have suffered damage from the earthquake. President Kwak said, "In Taiwan, there are partners, members, and families cooperating with SK Hynix in various semiconductor-related fields," and added, "We will do our best to help restore the earthquake damage as soon as possible."

Editor's NoteSemiconductors, often called the rice of modern industry. Although it's a term we hear daily, it can be hard to explain. Peace & Chips will make the complex concepts and overall trends of the semiconductor industry easy to digest. Just place your spoon and enjoy.