Samsung’s Austin Chip Plant Outage Will Last Until End-March & Impact Global Shipments

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Samsung Electronics' foundry in Austin Texas responsible for manufacturing 5G, display and logic devices is unlikely to reach optimal production before the end of this month reports research firm TrendForce. The plant's S2 line is responsible for manufacturing these products, and owing to the volume of components shipped from it, TrendForce believes that the production drop will reduce global smartphone output by 2% in the second quarter of this year.

Production Drop At Samsung's Austin Plant To Reduce 5G Smartphone Output By One Third During Next Quarter Believes Research Firm

TrendForce estimates that one-third of the S2 line's output is for Qualcomm's Radio Front-end components for fifth-generation (5G) smartphones, and as a result, these devices will experience a 30% production drop during the upcoming quarter. Yet, given the greater share of 4G smartphones in the overall global output and given the fact that device makers are expected to increase their 4G device output as a response to the 5G component shortage, TrendFroce believes that the overall global handset production will not drop by more than 5% in the upcoming quarter.

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After the 5G components, one-fifth of the S2 line's output is for display components, including those used by Apple Inc for its latest iPhones. However, since Apple plans to retire one of the four smartphones launched last year and its peak selling season is over, the shortage is unlikely to affect the Cupertino tech giant's smartphone output.

In an earlier exclusive, Reuters had reported that modems sold by Qualcomm were in shortage due to production problems being encountered by Samsung and that a contract manufacturer for major smartphone brands had confirmed that it was facing a component shortage from Qualcomm which would make it cut its handset shipments for this year.

When combined, Qualcomm's Snapdragon X50 baseband (bottom right) and QTM052 mmWave transceiver enable a gadget to achieve 5G connectivity. (Image Credit: Qualcomm)

The shortage in the smartphone marker comes in the wake of a similar one being experienced by automakers. Following China's post-pandemic economic recovery, carmakers were forced to increase their chip orders for automobile chips after having reduced them earlier to reduce procurement costs. However, owing to process node capacity being fulfilled by orders from other segments, the companies were unable to procure the silicon products in adequate quantity to maintain continuous production - an occurrence that forced major carmakers in the U.S. to shut down production.

A winter power outage in Texas that lies behind current chip troubles and which caused suffering for thousands of residents has also created doubt in Samsung's mind for a new chip facility in the U.S. The company plans to produce semiconductors manufactured through the 3nm process node with this facility and it is currently negotiating with Texas officials for tax breaks close to a billion U.S. dollars spread over 20 years.

Samsung's rival in the contract chip manufacturing space, the Taiwan Semiconductor Manufacturing Company (TSMC), also plans to build an American chip facility in Arizona. TSMC has already allocated funds for this purpose and expects the plant to be operational in a few years.

To reduce the impact of the production outage on the global smartphone market, TrendForce believes that Samsung will prioritize production of the 5G components first once the S2 line is fully back online. The current disruption is due to Samsung's decision to suspend wafer inputs into the line, with a 90% capacity utilization not expected before March-end. Capacity utilization is a term used to refer to the output of a process divided by its capacity by operations managers.

The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.
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