Texas power failures shut down chip factories, which could send shock waves up the supply chain

February 17, 2021, 7:27 PM UTC

Power outages across Texas caused by historically cold weather have shut down semiconductor plants clustered around Austin, further disrupting a supply chain that has already been falling short of customer needs.

NXP Semiconductor, one of the largest makers of chips used by automakers, has idled two plants in the Austin area, the company said early Wednesday. Samsung Electronics, the world’s second largest semiconductor maker, also closed down production at its Austin site, the South Korean company said.

Carmakers around the world have slowed production because they can’t get enough supply of electronic components. Other electronics makers, including Apple, have said their growth has been constrained by the lack of parts as demand rebounded faster than many expected from the depths of the COVID-19 pandemic economic slump.

The Austin area is home to several plants and other facilities of major chipmakers. Unprecedented cold winter weather and a surge in electricity demand has crippled the Texas utility grid, forcing factory shutdowns, store closings and leaving more than 3 million homes without power.

Chip plants typically run 24 hours a day to enable them to be economically viable. The complex photolithographic process used to make semiconductors can’t usually be stopped suddenly without damaging at least some of the work in progress. Samsung and NXP said they are assessing the situation and will resume production as soon as power is restored.

Samsung said Tuesday that it received prior notice of the shutdown and was able to take appropriate measures to protect the equipment and wafers in production. NXP said it will be able to evaluate the impact when full production resumes. The Netherlands-based company said all of its other manufacturing facilities outside Texas remain in full operation.

“It’s very early in the process, and we are dealing with a real-time situation,” Jacey Zuniga, an NXP spokesperson, said Wednesday. “Once necessary utility services are restored, our ops team will be able to evaluate when full production will resume.”

Austin is home to two of NXP’s five internal chip plants. The company handles half of its own silicon wafer processing and outsources the balance.

NXP shares fell 2.4% to $190.69 at 1:15 p.m. in New York, in line with a general decline by semiconductor companies. The Philadelphia Stock Exchange Semiconductor Index declined about 2%. Shares of Samsung dropped 2% to 83,200 won at the close Wednesday in South Korea.

Samsung, which locates most of its production in its home base of South Korea, has a logic semiconductor plant in Austin that makes chips on a contract basis for other companies. It’s unlikely that the plant makes chips for high-profile customers such as Qualcomm and Nvidia because the factory is one of Samsung older facilities, according to a report by Chris Caso, an analyst at Raymond James.

For NXP, the outage may have a more significant influence on industry dynamics, he said.

“Under normal circumstances we would expect this to have only a minimal impact, but given the significant shortages occurring throughout the industry, and in NXP’s primary automotive market in particular, such an outage will only serve to exacerbate those shortages,” Caso wrote.

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