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IC Insights Predicts Quake’s Impact on Electronics Will Be Limited

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.”

7 comments on “IC Insights Predicts Quake’s Impact on Electronics Will Be Limited

  1. prabhakar_deosthali
    March 30, 2011

    It is reassuring to all of us to know that the Japan Earthquake-Tsunami_nuke radiation combined will have a minimal impact on the golbal economy and the Electrnoics business. While there is a temporary disruption in supplies and associated hoarding of components by the companies who are overcautious, whatever supplies are currently available should be directed to the products which support life-support systems and other such critical applications. The consumer products like new tablet versions or new smart phone versions slated to enetr the market , can take a backseat while the componet supplies improve. In our priority list humanity should come fist and our business the second.

  2. SunitaT
    March 30, 2011

    “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”

    Bolaji that's the disadvantage of future's market. Just rumour can make prices to surge. By when do you think these prices will return to normalcy ?


  3. Barbara Jorgensen
    March 30, 2011

    In retrospect, Taiwan fared better than expected after its last devastating quake. Of course, it didn't have the tsunami and nuclear complications. Perhaps the overall economy won't feel the impact, but the nation of Japan certainly will.

  4. Backorder
    March 30, 2011

    Semiconductor vendors have reacted well to ensure that the end customers remain organized, informed and reasonable. This has allowed the prices to remain quite stable too. I agree with the report that the impact will be minimal only.

  5. maou_villaflores
    March 30, 2011

    I think these vendors , suppliers and electronic company should consider other resources in China, So. Korea, SEA, Taiwan etc. for the meantime Japan is still recovering to meet the production and manufacturing demands.

  6. SP
    March 31, 2011

    Well with Japan being an advanced country and so participating in high tech sector, this kind of natural calamity will defenitely affect world's GDP. Many companies have their manufacturing plants in Japan. the loss is unbelieveable.

  7. Backorder
    March 31, 2011

    Maou, I think thats what is happening precisely. Fabs which were hit have started manufacturing the devices that were hit by offloading them to other locations worldwide. That means a little more work for the rest of the world but, if it gets distributed over large number of facilities and hence is manageable. For companies with all the resources invested in Japan, it is surely a hard time.

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