The Butterfly Effect

Last month, Samsung-- the Korean behemoth of the semiconductor industry-- suffered a modestly reported power outage at its facility in Giheung, Gyeonggi Province. Analysts said the incident could wipe out "as much as a month's worth of Samsung's total production of NAND flash memory chips." By itself, this is not exactly news, but there's always the butterfly effect.

Commanding 45 percent of the market share, Samsung is the world's leading manufacturer of NAND flash memory chips-- the stuff in iPods, iPhones and digital cameras. But NAND is being eaten alive by the increasing amounts of memory we demand in our gadgetry. Back in April, Apple was in talks with Samsung to supply 500 million 4G NAND flash equivalent chips for its iPhones. But that was about 15% more than the original agreement, and Samsung, already projecting a shortage of NAND flash memory during the second half of 2007, was unsure whether it could meet Apple's demands.

That left the other flash memory manufacturers-- Toshiba among them-- to pick up the slack. Then, on August 3, the power went out. Samsung's hiccup ended up costing the company $41 million. I don't know what that is in semiconductor dollars, but with Toshiba nipping at Samsung's heels for dominance of the NAND market, Samsung can't have been happy to lose it. Toshiba just completed a brand new 300-mm fab in Nagoya, Japan, and at last week's gauntlet-dropping ceremony-- sorry, fab-line opening celebration-- president Atsutoshi Nishida announced that Toshiba is gunning for Samsung.

Then, on September 5, Apple chopped $200 off the iPhone, prompting sales of the toy to reach one million a scant five days later. Sales are still climbing, by a projected 300 percent a week.

The bottom line: life is good if you're a NAND-chip manufacturer. According to market research firm iSuppli, the Samsung power glitch helped drive up memory prices, and that helped everyone. Micron said that customers were looking to them to bridge the gap left by Samsung. EETimes reports that NAND flash prices jumped by 15 percent in the first half of August alone, and later to to 20. Even the tragic DRAM prices stopped falling. The price upturn looks good for everyone, but it's not clear how Samsung will be affected by the windfall it has helped bestow on its competitors. Disaster, of course, is by no means imminent. Though Toshiba is Japan's biggest NAND-chip maker, their 28% of market share means that Samsung still has time to regroup.

The dessert portion of this story was found by Mark Osborne over at The candid "sheer panic" photograph accompanying the Chosun Times story is a "rare and classic" find, Osborne says. Nobody knows how it slipped by Samsung's PR team. "Perhaps it was taken by someone at Samsung and leaked to the press!"



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