Fabs at Risk From Ring of Fire

It's called the Ring of Fire — an area (actually with more of a horseshoe shape) of high seismic activity that extends from southeast of Australia north along the Pacific coast of Asia, crosses south of Alaska, and then continues south along the coast of North, Central, and South America.

According to Wikipedia, 90 percent of the world's earthquakes occur along the Ring of Fire, including recent quakes in Japan and Chile. Another 5 to 6 percent of the world's earthquakes occur along the Alpide Belt, which starts along the west coast of Indonesia and runs across the Himalayas, through the Mediterranean, and out into the Atlantic.

The Fab Database, a {complink 7526|Semico Research Corp.} service, indicates that 36 percent of the world's semiconductor fabs are in high-risk areas in the Ring of Fire. These areas include include Japan, Taiwan, and parts of the United States (California, Oregon, and Washington). Another 22 percent of semiconductor fabs are in areas considered at moderate risk, including parts of China, Hong Kong, South Korea, Malaysia, Singapore, Thailand, and the west coast of the United States.

The risks include damage from both earthquakes and the tsunamis that sometimes result from them. Semiconductor fabs in these areas must be built using very high standards, and those along the coasts are also vulnerable to floods from tsunamis. Infrastructure, such as the Fukushima power plants in Japan, is also at risk. Companies that supply raw materials to the semiconductor industry are located in these areas, as well. Assembly and test facilities are also under threat, particularly in the Philippines.

Looking at the stats from a capacity standpoint, approximately 41 percent of the world's semiconductor capacity is located in the higher-risk areas. Another 34 percent is located in the moderate-risk areas. In other words, three quarters of the world's semiconductor capacity is under at least some risk from earthquakes and/or tsunami damage from the Ring of Fire.

No place in the world is immune from natural disasters. However, in light of the 2011 earthquake and tsunami in Japan and the recent floods in Thailand, more companies are aware of the need to diversify their manufacturing locations to mitigate the risk of supply interruption. Rising costs in the Asia-Pacific region could help make manufacturing in other regions more cost-competitive in the future.

Some in the industry have already taken steps in this direction. Efforts are well under way to develop facilities in upstate New York. {complink 12822|GlobalFoundries Inc.} just began production at its brand new fab in Malta, N.Y. It is producing 32nm SOI chips with embedded DRAM for {complink 2470|IBM Corp.}, and it will be in volume production in the second half of 2012. The fab has 300,000 square feet of clean room space and will be capable of producing 60,000 wafers per month at full production.

Where is your fab?

On another positive note, semiconductor revenue is expected to increase 8 percent in 2012 after a flat 2011. There have been numerous challenges to the semiconductor industry over the past year. These challenges have impacted the status of semiconductor fabs worldwide in terms of capacity, capex, wafer size, closures, launches, production ramps, technology node migration, and employee count.

Economic uncertainty in Europe and the United States has had a dampening effect on semiconductor demand. The devastating earthquake and tsunami that hit Japan in March 2011 proved challenging for a number of large manufacturers in the region. The flooding in Thailand caused problems in the semiconductor and electronics supply chains. Semico's 2011 Fab Database study provides key information on changes that occurred in 2011 and plans for fab construction and closures in 2012-2013.

9 comments on “Fabs at Risk From Ring of Fire

  1. Damilare
    January 17, 2012

    Thanks for the article Adrienne.

    From the graph in your article, there appears to be a large number of Fabs in the low risk region (the highest of any of the single regions) however, there is no commensurate 'capacity'. I was wondering if the increase in capacity in the existing Fabs of the low risk region might give a breath of relief in this market?

  2. _hm
    January 17, 2012

    Russia and East Europe may offer very good alternative. More investment should be made there.


  3. Anand
    January 18, 2012

    I feel even India is a very good alternative. Deccan Plateau which is south to the India is considered as less earthquake prone. Moreover india has many skilled manpower which can make this setup easy.

  4. prabhakar_deosthali
    January 18, 2012

    I agree that India could be a good option. But as per my knowledge FABs require a lot of water and that may be a problem unless the fabs are located near sea shore ( I don't know whether Sea-water can be used directly by Fabs.


    This also reminds me about the disastrous fire a couple of decades back that completely burned India's only semiconductor manufacuring facility at that time – The semiconductor complex.

  5. Anand
    January 18, 2012

    But as per my knowledge FABs require a lot of water and that may be a problem unless the fabs are located near sea shore ( I don't know whether Sea-water can be used directly by Fabs.

    @prabhakar_deosthali, there are so many rivers that flow here in south India, I think water shouldn't be a problem. I am curious to know what other factors are considered before choosing fab-site ?

    January 18, 2012

    Most major companies have disaster receovery plans in place for this and balance the risk vs reward of locating manufacturing plans in these locations.

  7. Adrienne Downey
    January 18, 2012

    Hi Damilare,

    Yes, your suggestion works well for companies with fabs in both high- and low-risk regions.  A good portion of the capacity in the low-risk region is in older fabs which typically have less capacity; many of the world's “mega-fabs” are located in high-risk and medium-risk areas (Taiwan, Korea).  Another solution is to build supply relationships with other companies in lower-risk areas, which companies such as Renesas have already done.


  8. Nemos
    January 18, 2012

    I am really impressed with this statement ” indicates that 36 percent of the world's semiconductor fabs are in high-risk areas in the Ring of Fire.” That can be used as an argument to those who believes that western companies care only for the labor costs, and that's why they choose these regions to move their factories. For me, it is out of sense the situation.

  9. Eldredge
    January 19, 2012

    It's good to hear that there is an expectation for healthy growth in the semiconductor industry in the coming year. Let's hope that growth extends into the electronics industey as a whole.

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