Supply Chain Matters provides an update to our previous commentary regarding a devastating September fire at a SK Hynix DRAM production facility in China. At the time of the incident, there was widespread speculation that the interruption of supply would spike DRAM component prices, especially since Hynix is a major memory chip supplier for Apple.
This week, SK Hynix posted a record quarterly profit as increased memory chip prices provided a cushion to reduced output following the China fire. Revenue for the quarter jumped 69 percent. However, according to a syndicated Reuters report published on the CNBC Business network, earnings are expected to dip in the current quarter due to anticipated slow recovery in the affected plant’s production rates. The report indicates that Hynix is yet to completely restore operations at the damaged plant in China which accounted for an estimated 15 percent of global demand for memory chips. Since the fire, average prices for Hynix’s DRAM chips have risen 5 percent. As we speculated in our original commentary, the impact of this price increase is more likely being felt by consumer electronics manufacturers that do not have the clout or volume scale of Apple.
Thus, while the market implications of the fire worked in Hynix’s favor in its most recent quarter, restoring full production in the impacted China plant remains an important priority for Hynix. Meanwhile, competitors Micron Technology, Samsung Electronics and Toshiba gain benefit from increased market prices and reduced supply.