The chip industry took March's one-two-three knocks with remarkable calm. First, it was hit by the spike in oil prices following the political unrest and near civil wars in North Africa, then the dreadful March 11 earthquake and tsunami in Japan, and finally the multi-state coalition military intervention in Libya to implement the United Nations Security Council Resolution 1973.
Last year, any one of these events would probably have been enough to deal the industry a knockout blow such as the one caused by the September 2008 Lehman Brothers collapse. This time around, despite still-fragile global economic confidence, the industry seems to have taken these events in its stride.
While it is far too early to quantify exactly what the industry impact will be, it is clear the events in North Africa pale in comparison to the aftermath of the Japan disaster. Japan is too important in the global electronics industry for the earthquake and tsunami not to have serious repercussions.
The events of March have brought up the far deeper industry problem of supply constraints, which we have long warned of — and could (should) have been avoided. In this respect, Japan's earthquake does have parallels with the Lehman Brothers collapse and its impact on worldwide finance.
At Future Horizons, we hope that the current disruptions to manufacturing worldwide will force a rethink of how the world manages production. We believe the repercussions will be manifested in four waves: immediate, near-term, medium-term, and longer-term, as follows:
- Near-term (next 1 to 2 months):
- Medium-term (next 3 to 6 months):
- Longer-term (next 6 to 24 months):
There will be some minor disruptions due to logistic-related issues, but otherwise it's going to be “business as usual.” There is sufficient inventory in the supply chain to keep the processes rolling, except for perhaps the NAND Flash memory spot market (30 percent of the whole market), where some price hikes are inevitable and unavoidable.
We expect some supply shortages caused by the destruction of work-in-progress inventory. Anything being made at the time of the disaster would have been lost and not salvageable.
There is potential for further supply shortages caused by reduced production capacity, as a result of factories being destroyed or being unable to restart due to inadequate electricity supply or a lack of parts, from resins to wafers to ICs to displays.
We foresee some supply chain constraints over this period as damaged factories are repaired or replaced and new capacity comes on line.
The industry thus faces an extended period of supply chain uncertainty and frantic order book rejigging by companies, hit directly by factory disruptions, seeking to reschedule their orders with alternative suppliers.