Resellers warned over potential memory shortage

Those with pressing needs advised not to wait for prices to soften in wake of factory fire in Chinese DRAM factory

A fire at a DRAM chip manufacturing plant in China has begun to constrict memory supply in the UK channel, leading some distributors to advise resellers with urgent project needs to get what they can, while they can.

DRAM spot prices spiked 19 per cent yesterday, according to Bloomberg, after a blaze on 4 September forced the world's second-largest DRAM chip maker, SK Hynix, to suspend operations at its plant in Wuxi.

Some memory manufacturers suppiled by SK Hynix are known to have suspended all purchase orders to UK partners yesterday before moving to take limited orders from those with the most critical needs today.

SK Hynix said on Wednesday that it expects to resume operations shortly, meaning supply volumes "would not be materially affected". It is set to issue a further statement this afternoon.

However, some commentators suspect the fire could have a much greater impact on DRAM pricing and availability than Hynix has indicated, with research house TrendForce asserting that "the potential damages imparted on the supply end should not be underestimated". It said yesterday that it believes it will take at least half a year for SK Hynix to fully rebuild the clean room that was damaged.

With the situation still up in the air, some UK distributors are urging resellers with pressing DRAM requirements not to hold off purchases in the hope that channel pricing and availability will quickly recover.

Gerard Marlow, general manager for business development at Hammer PLC, said he had this morning opted to secure as much product as he could from his vendor partners, both for Hammer's system builder business and for Hammer partners with critical DRAM requirements.

Resellers should not hold firm waiting for pricing to soften, as many mistakenly did in the wake of the HDD supply crisis of late 2011, Marlow counselled.

"The media reports are making out the impact is greater than what [SK Hynix] said. Even if that is not the case, would you want to take that risk and gamble? We as a business are not taking that gamble," he said.

"Memory suppliers are going to be very cagey about releasing their inventory until the picture becomes clearer."

However, Andrew Henderson, managing director of Kingston distributor Simms International (pictured), said it is too early to panic.

"Until we understand what damage has been caused by the fire, and the subsequent impact on production, it is difficult to take a long-term view on where pricing will go," he said. "Pricing has jumped, but, in our view, that is based on speculation, not fact. We will know more on Monday."

Henderson said Simms is working closely with Kingston to support resellers with runrate business requirements.

"What we are having to turn away is the speculative or opportunistic buying from companies we have never heard of or brokers from outside the UK," he said.

A representative for Integral Memory, a local DRAM manufacturer and distributor that counts SK Hynix as a direct supplier, agreed that the initial price spike was speculative and urged resellers not to worry. Channel prices for DRAM have risen only fractionally so far, he claimed.

"My initial reaction is - pending what SK Hynix says in its statement this afternoon -there will be no major long-term damage to the facility," said the representative. "We carry a lot of stock and are not anticipating any supply shortages."

According to DRAMeXchange, SK Hynix makes 30 per cent of the world's DRAM chips, making it the second-largest player behind Samsung. SK Hynix's Wuxi plant produces about half of its monthly wafers.

Reports suggest no major injuries were sustained in Wednesday's blaze.

In a statement, Kingston said: "Kingston Technology is aware of the unfortunate occurrence with one of our closest vendors SK Hynix. At this time we have no comment on how this situation relates to our business. Our concerns right now are the safety of the people affected and their families."