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Western Digital, Kioxia Say Contamination Hurt Chip Output

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(Bloomberg) -- Western Digital Corp. and manufacturing partner Kioxia Corp. said that contamination of materials used in flash-memory chip production has hurt output at two factories in Japan.

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The two companies, whose partnership is one of the largest producers of the flash memory that provides storage in phones and computers, said they’re working to get the plants in Yokkaichi and Kitakami back to normal operations as quickly as possible. They didn’t didn’t identify the cause or provide an estimate for when that would be.

The announcement is another setback at a time when the global semiconductor supply chain has failed to keep up with a surge in demand, causing shortages that are hobbling industries across the economy. Flash memory is an essential component of many electronic devices, where it’s replaced magnetic disks as the main storage of data. Everything from Apple Inc.’s iPhones to electric cars and supercomputers relies on the chips.

It’s not yet clear how extensive the latest disruption will be. Western Digital said its expects a reduction in its supply of “at least 6.5 exabytes.” Wells Fargo analyst Aaron Rakers said the comment implies the total shortfall, including Kioxia’s share of production at the plants, would be about 16 exabytes. That equates to about 10% of the total market consumption in a quarter, Rakers wrote in a note.

“Flash memory prices will rise for sure, further adding fuel to the recent component price hike trend stemming from supply shortages,” said Ace Research Institute analyst Hideki Yasuda.

South Korea’s Samsung Electronics Co. and SK Hynix Inc. and U.S. chipmaker Micron Technology Inc. are the other main producers of this type of semiconductor. Samsung dominates the memory market in general.

SK Hynix shares rose as much as 2.8% in Seoul trading. Micron’s stock rose about 2% in late trading following Western Digital’s announcement.

“While disruptions to the Western Digital and Kioxia Nand Flash operations can certainly be viewed as a negative, historically disruptions to flash production (earthquakes, power outages, etc.) have resulted in positive impacts on Nand flash pricing and consequentially share prices,” Rakers wrote.

In addition to a general shortage of semiconductor capacity, chipmakers have suffered unusual mishaps over the last year. Renesas Electronics Corp., a Japanese supplier of chips for use in vehicles and industrial machinery, had a factory knocked out by a fire. Unusually cold weather in Texas hit production at Texas Instruments Inc. and Samsung, while Infineon AG and Robert Bosch GmbH suffered disruptions at their plants in Dresden, Germany when a stray foil balloon knocked out power. Those mishaps have piled pressure on a supply chain that’s been strained by outbreaks of Covid-19 which have forced companies to keep staff away from factories.

Memory chips are unusual in that they’re made to industry standards, meaning the same chip can be sourced from various producers. That’s created a market for the chips which trade as commodities. A recent lockdown at the Chinese city of Xi’an affected production at Samsung’s Nand plant as well as Micron’s packaging facility in the region, which pushed up memory spot prices in January.

While the statements from Western Digital and Kioxia didn’t give an estimate for when production will be restored, it typically takes about three months for a chip to go from a disk of silicon to a finished component that can be used in an electronic device.

Kioxia said its newer and more lucrative type of 3D flash was the product line impacted, and “the company does not anticipate that shipment of its conventional 2D NAND flash memory will be affected.”

A Kioxia spokesperson said that only part of 3D Nand production has been hurt. The company will continue to ship from inventory in the short term but shipments will be curtailed in the “near term.”

(Updates with comments from Kioxia)

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