Virus unlikely to cause unrest at Samsung chip plants

Employees walk through a Samsung Electronics semiconductor manufacturing facility in Hwaseong, Gyeonggi Province. / Courtesy of Samsung Electronics

By Baek Byung-yeul

Samsung Electronics is seeing a rise in the number of confirmed cases of COVID-19 among workers at its key manufacturing plants in South Korea, the United States and Brazil, but the impact on business will be limited, officials said, Thursday.

The latest employee to be infected works at the world's largest memory chip supplier's plant in Austin, Texas in the U.S., where Samsung manufactures chips for its top clients including Apple, Dell and other big corporate customers in the U.S.

Samsung confirmed one of its employees at the Austin plant tested as positive for the virus but stated that its production lines haven't been affected as the employee has been out of the office since March 13. This comes after a Samsung employee at its foundry line in Giheung, South Korea, also contracted the coronavirus disease.

As Samsung's Giheung-Hwaseong facilities are the core part of its main silicon operations, concerns were that the confirmed case at its South Korean facility would make some negative impact. Samsung said the factories both in Austin and Giheung-Hwaseong remain operational as it has conducted precautionary deep cleaning and sanitation measures on both sites.

“At both facilities, we have taken measures in accordance with the health authorities' guidelines and our production schedule will not be affected,” a Samsung official said.

Any shutdown of Samsung's chip production lines, if it happens, will have a substantial impact on the market. As there's no production delay despite the latest cases, the impact will be limited on its chip business both in terms of profit and business activities.

Stock analysts said the virus could have a meaningful but short-term negative impact on the global smartphone shipment. Even without any supply adjustment, both DRAM and NAND flash-type memory chips will be in relatively short supply throughout 2020 as the sector's three leaders ― including SK and Micron ― have no plans to add wafer capacity after the events of 2018, when all the leaders were hit hard by the supply glut.

“Samsung's position to maintain rational supply behavior in this year's expected upcycle hasn't changed. This strategy has no relation to the recent confirmed COVID-19 cases in its plants in South Korea and the United States,” one official said.

The company struggled with its chip business last year due to low memory chip prices amid a continued downturn in the global semiconductor industry. Predicting this year's business outlook, Samsung assumed it would see a boost in demand for computer memory chips because the 5G smartphone market was expected to expand and memory chip prices are showing signs of a rebound.

Samsung said two employees working in a mobile device production plant in Gumi, North Gyeongsang Province, have contracted the coronavirus after their business trip to Brazil. There will be no shutdown of the plant as the two employees had been under self-quarantine after their return and didn't visit any of the company's facilities. Samsung Electronics has a wide-range business portfolio from smartphones, telecommunications equipment and consumer electronics products to semiconductors.

Samsung Electronics is expected to post 56.97 trillion won ($46.1 billion) in sales for the three months ended March 31 this year, 5 percent down from the fourth quarter of 2019; however, its operating profit during the period will be cut by 13 percent from the previous quarter to 6.24 trillion won mostly due to weak home appliances and smartphone sales.

“As the world's economy has been hit hard by the coronavirus outbreak, we have seen a growing demand for memory chips as more companies and public organizations are trying to adopt remote working systems to contain the virus,” the Samsung official said.

Analysts also estimated it will be inevitable that Samsung would experience a downturn during the coronavirus pandemic but the increasing adoption of a “contactless” economy will help boost its chip business.

“Due to the COVID-19 outbreak, we lowered growth expectations because the decreasing shipment of smartphones will affect demand for semiconductors used for smartphones. But the demand for chips used for servers and PCs are increasing as consumers are switching their lifestyle to a contactless one,” said Lee Su-bin, an analyst at Daishin Securities. “The increasing demand will not be short term. It will continue for a long time, offsetting slump in the smartphone business.”