As Samsung Electronics proceeds with equipment replacement and upgrades at its Xi'an NAND flash production plant in China, some expect production disruptions to continue into next year. The Xi'an plant had a relatively high share of older-process products, such as 128-layer NAND. As the global NAND industry's mainstay products move into the 200- to 300-layer range, the plant has been assessed as showing limits in productivity and cost competitiveness.
In response, Samsung Electronics has been carrying out an upgrade of production lines across the Xi'an plant since last year. However, analysts say it is difficult to avoid a temporary drop in NAND output during the process of removing existing equipment, bringing in and installing new tools, and then restabilizing the process. While the profitability of the NAND business will improve, the overall market share could shrink or plateau.
According to industry sources on the 22nd, the monthly average NAND wafer output at Samsung Electronics' Xi'an plant in China has declined year over year. The industry estimates that production, which hovered around 150,000 wafers per month, has decreased by about 5% to 6% this year. Even as assessments say the global NAND market is entering a boom phase, supply from the Xi'an plant—one of Samsung Electronics' key overseas production bases—is falling. This contrasts with rivals Kioxia of Japan and YMTC of China, which are expanding capacity step by step.
The industry points to a "transition period" at the Xi'an plant as the key reason for the output decline. NAND scales capacity by stacking cells vertically, so the higher the number of layers, the more data can be stored in the same area. High layering is therefore crucial for costs and productivity. But the Xi'an plant has long had a high share of 128-layer products, prompting concerns it could lag in the high-layer NAND race. The view is that Samsung Electronics is rushing to replace equipment, even at the cost of immediate production setbacks, to secure mid- to long-term competitiveness.
Competition has intensified in particular as YMTC, China's largest NAND maker, has begun mass production of 294-layer products. With 100-layer products, it has become difficult to stay ahead of Chinese rivals, and pricing pressure is growing in the commodity market. For Samsung Electronics, the situation calls for shifting production lines upward to increase the share of next-generation products rather than maintaining volumes with existing processes. Another variable is that if U.S. semiconductor restrictions on China tighten, importing advanced equipment into China could become more difficult. It is highly likely the company judged it must accelerate upgrades of key lines before the regulatory environment becomes more rigid.
A full upgrade of a semiconductor production line does not end with simply bringing in equipment. Even after replacement, time is needed to retune process conditions, stabilize Production yield, and readjust the product mix to match market demand. The industry views large-scale equipment replacements at memory plants as long-term projects that take at least six months and up to more than a year. A semiconductor industry official said, "Including yield, cycle time, and product mix, the fully normalized timeline as felt by the industry is typically six to nine months, and in some cases more than 12 months—an estimate that is not unreasonable."
In the past, the NAND industry also suffered supply disruptions during major process transitions. When the production focus shifted from planar NAND to 3D NAND, major players such as Samsung Electronics and Kioxia simultaneously replaced equipment, tightening supply across the market. The Xi'an plant upgrade likewise is seen as potentially influencing future NAND supply-demand and pricing trends beyond just Samsung Electronics' situation. The industry believes that even if Samsung Electronics endures short-term production losses, it must complete a shift to next-generation NAND to defend its market leadership going forward.