Hacks, rumors and drama in tech's most boring sector - chip production
(Bloomberg Gadfly) -- One of the technology industry's most humdrum sectors found itself some drama in the past few weeks amid a cyber attack and lost production.
NAND flash is important stuff -- your holiday snaps and favorite apps depend on it. But amid the rush to sharper displays and high-resolution cameras, few stop to think about the chips inside the iPhone that store all that important (and useless) data.
These are the chips that attracted a bevy of international suitors to the door of Toshiba Corp. earlier this year. Western Digital Corp. and Apple Inc. rely on them, and Bain Capital Private Equity and Foxconn Technology Group wanted more control over them. Bain, teaming up with Apple, won the $18 billion battle for Toshiba's chip business.
Toshiba's share of NAND flash market = 17.5 percent.
Then came the alleged hack attacks. Digitimes, a Taipei-based tech news site, reported Monday that ransomware forced Toshiba to halt production for a few weeks, cutting output by 100,000 wafers. That's a big number, equal to around 20 percent of Toshiba's monthly capacity, according to researcher TrendForce Corp.
In an email reply to Gadfly, Toshiba denied that it suspended production at Yokkaichi, the site of its NAND factory, and said it wasn't approached by Digitimes for comment.
Still, a person familiar with the matter told Gadfly that the company was struck by a virus -- not ransomware -- in early September that affected some production facilities and prompted Toshiba to advise clients of minor delays in delivery. Since the virus remained within the company, it decided not to disclose which facilities were affected or the exact scale.
Even before the Digitimes report, TrendForce senior research manager Alan Chen had heard the rumors and jumped on the phone to check with his sources: yes, there was some incident at Toshiba; yes, production was affected; no, the scale wasn't as vast as 100,000 wafers. It was less than half of that, he told Gadfly.
Such a blip highlights the importance of the sector and its lack of transparency. Toshiba is the second-largest supplier of NAND flash with a 17.5 percent share, behind Samsung Electronics Co. on 35.6 percent, TrendForce estimates. What's more, supply this year is already forecast to fall 2.9 percent short of demand as growth outstrips capacity expansion. Heavy new investment, including 330 billion yen ($2.9 billion) from Toshiba, is expected to bring the industry back into balance next year.
That makes any potential supply constraint a big deal, especially amid concern that the iPhone X is facing production shortages and with numerous other smartphones being introduced from brands including Huawei, Google, Xiaomi and Samsung.
The drama also adds to the opacity of the flash market. Manufacturers have been shutting or slowing lines in order to convert their facilities to better equipment, while some are adding entirely new factories. This process crimps output in the short term, but once the upgrades are complete their capacity jumps, and it's the scale and timing of these changes that's made the global supply-demand picture unclear.
As industry stakeholders -- including investors and global electronics brands -- try to keep tabs, there's every chance that more rumors and incidents will make the dullest of tech sectors just that little bit more interesting.