Texas Winter Storm Strikes Chip Makers, Compounding Supply Woes -- Update

By Asa Fitch 

Severe weather conditions hitting much of the U.S. have caused some semiconductor companies to idle production capacity, threatening to exacerbate a chip shortage that has already prompted car makers to curtail output at some plants.

South Korea's Samsung Electronics Co., one of the world's biggest chip makers, operates two factories in Austin, Texas, and was asked by local authorities to shut those down on Tuesday, said a company spokeswoman. Samsung expects to resume production as soon as possible and, the spokeswoman said, was waiting for electricity provider Austin Energy to advise when the chip maker's operations could start up again.

Texas has suffered widespread power disruptions that began early Monday amid a severe winter storm. The outages have prompted local officials to ask companies to reduce operations to minimize demand on the region's power grid.

The Austin facilities represent about 28% of Samsung's overall production capacity, according to Citi analysts. Austin is a manufacturing hub for Samsung, which is considering a $17 billion plan to expand its operations there or in other parts of the U.S.

Dutch chip company NXP Semiconductors NV said Wednesday that it had to scale back work at two facilities in Austin. "Affected customers are being notified directly by NXP of the potential for supply disruptions," the company said.

NXP makes chips for the automotive industry. Automotive sales comprised $1.19 billion of the company's fourth-quarter revenue, roughly half of the overall figure.

"Once necessary utility services are restored, our operations team will be able to evaluate the impact of the shutdown, and when full production will resume," said NXP's vice president of operations, David Reed.

NXP's Austin facilities represented about 30% of the company's total factory square footage as of 2019, according to a regulatory filing.

Other large customers of Austin Energy have also shut down because of the storm, according to a statement from a consortium of those customers. Germany-based Infineon Technologies AG, a car-chip supplier, has manufacturing facilities there that Citi analysts say mainly produce memory chips critical for automotive and industrial markets that accounted for about 5% of the company's revenue last year. The company didn't immediately return a request for comment.

The disruptions come at a particularly critical time for the chip industry, which has experienced surging demand with little spare production capacity as individuals and businesses adapt to working from home during the coronavirus pandemic. Sales of laptops, videogames and data-center servers are up.

The car industry has been hit hard by the supply issues after some parts makers failed to secure sufficient chips to feed fast-growing demand. Volkswagen AG, General Motors Co., Ford Motor Co. and others responded by trimming vehicle production.

Even before the winter weather struck, leading to the Texas power outages, the chips shortage had dented growth ambitions. The shortage was projected to cause the global auto industry to produce nearly 700,000 fewer cars than planned for the first three months of 2021, according to research group IHS Markit Ltd.

Analysts at Raymond James said in a note that the Samsung shutdown would likely worsen already tight chip-supply conditions. The Austin facilities comprise largely older chip-manufacturing technologies and thus aren't likely to have a significant impact on customers such as mobile-phone-chip designer Qualcomm Inc. or graphics-chip maker Nvidia Corp., Raymond James said.

Write to Asa Fitch at [e-mail]

(END) Dow Jones Newswires

February 17, 2021 14:38 ET (19:38 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.