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Samsung, Micron warn China's Xian lockdown could disrupt memory chip manufacturing

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FILE PHOTO: Workers stand at a residential area under lockdown following COVID-19 outbreak in Xian
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By Joyce Lee and Manya Saini

(Reuters) -Samsung Electronics and Micron Technology, two of the world's largest memory chip makers, warned that strict COVID-19 curbs in the Chinese city of Xian could disrupt their chip manufacturing bases in the area.

The lockdown in the city puts further pressure on global supply chains and adds to a torturous year for exporters facing sharply higher freight costs even as prices for raw materials including semiconductors skyrocket amid the two-year long pandemic.

The curbs could cause delays in the supply of DRAM memory chips, widely used in data centres, Micron said on Wednesday.

The stringent restrictions, which went into effect earlier this month, may be increasingly difficult to mitigate and have resulted in thinner staffing levels at the manufacturing site, Micron added.

Samsung Electronics also said on Wednesday that it would temporarily adjust operations at its Xian manufacturing facilities for NAND flash memory chips, used for data storage in data centres, smartphones and other tech gadgets.

Samsung's Xian semiconductor facility is currently operating normally, Chinese media group Yicai reported on Thursday. Analysis provider TrendForce also said Samsung's Xian plant is manufacturing without significant disruptions for now and supply of raw materials seems sufficient, but there may be a slight decline in output if the pandemic is not controlled.

"The impact on global supply is controllable, though there are uncertainties," said Yan Chengyin, consultant and manager at Beijing-based Bayes Consulting.

"The uncertainty is how soon the spread of the virus can be stopped and factories can return to work as normal. In our experience, clusters of cases will be under control very soon in China. Also I think the local government will try to support large foreign companies like Samsung."

Seoul-based analysts said chips made in Samsung's Xian NAND plant mainly go to China with limited shipments heading overseas. Some of the biggest demand for the kind of chips made in the plant come from Chinese server companies, they added.

TrendForce said on that smartphone and notebook computer makers may be directly impacted by any changes in operations at the Xian production base, but noted that Samsung's relatively high inventory level can supply buyers without any snags in the short run.

Chinese officials have imposed tough curbs on travel within and leaving Xian from Dec. 23, in line with Beijing's drive to immediately contain outbreaks as they appear.

The COVID-19 outbreak in Xian is the biggest seen by any Chinese city this year, with over 1,100 cases in total during the latest flare-up.

"We are tapping our global supply chain, including our subcontractor partners, to help service our customers for these DRAM products," Micron said in a blog post https://www.micron.com/about/blog/2021/december/micron-statement-on-current-situation-in-xi-an-china.

"We project that these efforts will allow us to meet most of our customer demand, however there may be some near-term delays as we activate our network," the company said.

Micron added that it was working to minimize the risk of virus transmission and had employed measures including physical distancing and on-site testing and was encouraging vaccination.

Samsung's memory chip operation in Xian is one of the largest foreign projects in China. The tech giant has two production lines in Xian making advanced NAND Flash products, which account for 42.5% of its total NAND flash memory production capacity and 15.3% of the overall global output capacity, according to TrendForce.

Samsung is expected to announce October-December earnings results in January.

(Reporting by Manya Saini in Bengaluru, Joyce Lee and Heekyong Yang in Seoul; Additional reporting by Sophie Yu in Beijing; writing by Shri Navaratnam; editing by Himani Sarkar and Jason Neely)

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