Samsung factory outage threatens flash supply, boosts memory makers

August 3, 2007, 6:29 AM UTC
Fortune

An unexpected gift for investors in flash makers: a power outage at top NAND flash memory producer Samsung’s factory near Seoul, South Korea has stoked fears of a chip shortage, sending industry shares higher in early trading.

The Associated Press reports that a spark in an electrical transformer caused a power failure on six chip-making lines at a plant. Five of the six lines make memory chips. AP quoted an analyst in Seoul saying it would take at least a month to restart the lines, a delay that will cause global supply problems and push up flash prices. [UPDATE: research firm iSuppli reports Samsung’s production could be back online by noon Seoul time on August 4.] The outage is bad news for Samsung, but good for competitors such as SanDisk (SNDK), Micron Technology (MU) and Intel (INTC), who could see the profit margins improve on the flash they’re able to bring to market.

SanDisk shares were up more than 4 percent in pre-market trading, and Micron shares were up more than 2 percent. NAND flash is a small portion of Intel’s business, and the news didn’t move the chip giant’s shares.

The Samsung chip outage is also bad news for consumer electronics companies such as Sony (SNE) and Apple (AAPL). Apple in particular uses flash memory in its popular iPods and iPhones, and the company has already said its profit margins will suffer this quarter because of higher component costs. Apple is a big customer of Samsung’s, and might need to find other sources to satisfy its big appetite for flash.