The March 11 earthquake and tsunami disasters in Japan will shave one half percentage point from global GDP in 2011 and contribute to a slight softening in the semiconductor and electronics market. These short-term effects will be limited, however, and the market should quickly recover, according to a report by market research company IC Insights.
Concurring with other industry observers, IC Insights noted that the Japan disaster will help reduce worldwide GDP growth to approximately 3.4 percent this year, compared with an earlier estimate of a 3.9 percent expansion. This will reduce the global economy by about $260 billion, assuming the Japanese economy declined by 5.2 percent in 2011.
“Taking the pessimistic situation of a 3.4 percent worldwide GDP growth rate in 2011 (as compared to our current forecast of 3.6 percent growth), and the associated $260 billion negative impact on worldwide GDP, and multiplying it by 2.2 percent yields an electronic systems sales loss of $5.7 billion.
“Subtracting $5.7 billion from IC Insights' current 2011 electronic system sales forecast of $1,348 billion would put electronic system sales at about $1,342 billion for this year, an 8.5 percent increase over 2010 compared to our current forecast of 9 percent,” IC Insights said.
If IC Insights' forecasts hold true for 2011, the global electronics industry will have dodged the worst of what could potentially arise from the recent Japan disaster. Like all forecasts, however, the IC Insights numbers are not set in stone. Numerous other factors and unanticipated developments, including the likelihood of tighter than expected supply constraints, higher oil prices, and a scramble for inventory by manufacturers could derail the slightly optimistic outlook.
In fact, IC Insights said its forecasts may represent the best short-term outlook for the industry and the worldwide economy, assuming oil prices stay relatively stable at around $100 per barrel of crude oil. Nevertheless, analysts with the research firm believe even a worst case scenario where the economy is more heavily affected would still not dramatically hurt the electronics industry. Any sales lost in 2011 would be regained in 2012, it said.
“IC Insights believes that any negative impact on electronic system sales from the current situation in Japan will only delay those sales, not destroy the demand for the systems. Thus, any shortfall in electronic system sales experienced in 2011 due to the Japan earthquake is likely to be gained back in 2012.”
The timing of the earthquake and tsunami may also help counter the worst of its likely impact. Had the earthquake occurred in the electronics industry's traditionally stronger third or fourth quarters, the market would have experienced a sharper decline in sales due to the possibility of a more extensive impact on the supply chain. Also, it would have been more difficult to recoup lost end-of-year and Christmas holiday sales.
It may still be too early to arrive at definitive conclusions about the potential impact of the Japan disaster on the worldwide electronics industry, however. Many of Japan's leading IC companies and raw materials suppliers are still evaluating the implications for their ongoing sales. In cases, plants that have been shuttered, and the ones that have been restarted may not reach pre-earthquake production levels until sometime in the second quarter.
Then there is the psychological impact of the disaster on companies operating in the sector, many of which are now beginning to build inventories in anticipation of tight supplies. Developments like these tend to push up prices at component suppliers and crimp margins at OEMs, which may not be able to pass on the additional costs to customers.
“Although it appears that major DRAM and flash memory fabs were not significantly damaged by the earthquake and tsunami, flash memory and DRAM spot prices jumped by 20 percent in the days immediately following the quake,” IC Insights said. “As evidenced by this example, supply does not necessarily need to be actually disrupted for prices to surge, just the 'potential' of a supply disruption can cause component buyers to step up their purchases for the 'just-in-case' scenario.”