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Potential Impact of Japan’s Earthquake on Electronics & IC Markets

The strongest earthquake ever recorded in Japan occurred last Friday at 2:46 p.m. local time. The earthquake and resulting tsunami were so powerful the island shoreline was moved 8 feet (and the speed of the Earth's rotation was increased by 1.6 microseconds!). Following the massive 8.9 magnitude earthquake was a tsunami that unleashed further devastation.

In the ensuing hours, additional damage reports coming from Japan reveals how devastating this quake really was. Two nuclear facilities with a total of five reactors suffered severe damages. One facility that contains three reactors is an older General Electric design commonly found in the US as well. As of today, there have been two explosions. An explosion shattered the building housing the nuclear reactor on Saturday. Although government officials are claiming that the metal containment vessel surrounding the reactor is still intact, clearly the situation is getting worse, not better. Rods have been exposed twice, resulting in a partial meltdown.

At this point, the best-case scenario will be to stop the nuclear reaction, cool the facility down, encase it in concrete, and abandon the facility. This would leave Sendai in an electricity deficit from the closure of three to five reactors. This certainly will cause some problems for the semiconductor and related manufacturing facilities in this area as they are electric power hogs.

Heavy damage is reported within a 200km radius of Sendai. One of Japan's largest oil refineries is on fire, and there were reports of multiple fires in Tokyo, which is almost 200 miles from Sendai. Gas lines in the area have also been severed.

Japan is a significant producer and consumer of semiconductors. In addition to memory products such as NAND flash, Japan is the largest supplier of discrete devices, including such products as power MOSFETs. These products are used in all electronic devices; NAND flash is a key component for many consumer and communication products. A small disruption in the supply chain can cause significant price increases for at least a limited time.

The {complink 7526|Semico Research Corp.} Fab Database lists more than 100 fabs in Japan. {complink 2134|Freescale Semiconductor Inc.} has a fab in Sendai, although our records indicate the company was intending to close the Sendai fab by the end of this year. The fab produces microcontrollers and sensors. {complink 12722|Renesas Electronics Corp.} seems to be enduring the most impact as it maintains several fabs in the Tokyo area. The company has closed several fabs indefinitely. Renesas is a major microcontroller supplier.

{complink 5648|Toshiba Corp.}, a key NAND supplier, maintains its Flash Alliance and Flash Partners fabs in Yokkaichi in the Mie Prefecture over 200 miles south of Tokyo. While Toshiba shut down a number of fabs for inspections, they are now back in production. Toshiba is the main manufacturing partner for {complink 4761|SanDisk Corp.} in its sector. Most of the other semiconductor fabs are located in the southern regions of Japan.

Many fabs halted production as a result of the disaster. The financial impact would include any equipment damage and loss of work in process. Companies will assess any damages and will most likely resume production based on availability of reliable electricity. Rolling blackouts could be the biggest challenge to running wafers through the fab plants.

In addition to electricity supply, there was some concern over the future supply of silicon wafers. {complink 9914|Shin-Etsu Chemical Co. Ltd.} and {complink 5274|Sumitomo Mitsubishi Silicon Corp. (SUMCO)} both maintain facilities in Japan and supply a significant portion of the silicon wafers used in the worldwide production of semiconductors. Many of the large manufacturers have released statements indicating no issues relating to silicon wafer supplies. Wafer production at some facilities has resumed as the companies work around the rolling blackouts.

Semico believes the quake may have significant impact on Japan’s semiconductor production this quarter, but the impact should be minimal, relative to total world production for the year. It is early in the year, and there is still time to recover for the peak production months of electronic products that typically occur in the second and third quarters of each year. Towards the end of last year, inventories were starting to grow, and there was a concerted effort by companies to reduce inventory levels. It would now appear that a little bit of excess inventory in products that come from Japan will be a windfall for those companies.

There could be a short-term positive impact for {complink 12822|GlobalFoundries Inc.} Its multiple fab locations are a definite plus. Companies may review the vulnerability of their foundry supply partners' susceptibility to earthquakes. But our memories are short. Even after the 1999 earthquake in Taiwan, companies continued to utilize the foundries in Taiwan.

Japan is a significant consumer of semiconductors. According to {complink 7501|Semiconductor Industry Association (SIA)}/World Semiconductor Trade Statistics data, Japan accounted for 19 percent of total worldwide discrete sales and 14 percent of total IC sales. This represents Japan's semiconductor consumption and has significant impact on production of electronic systems. Production of automobiles, consumer electronics, and certain industrial parts for aircraft and heavy equipment could be delayed.

7 comments on “Potential Impact of Japan’s Earthquake on Electronics & IC Markets

  1. Adeniji Kayode
    March 15, 2011

    This is such a torching article. The electronics and IC Market will definitely feel this.

    What matters now is international rescue for quick recovery of Japan.

    It is good to hear that the central bank  is willing to inject $182 billion into money markets to  stabilize the financial system and that eighty-eight governments and six international institutions have offered assistance with recovery efforts.

    Should we expect increase in price of elctronics from Japan for the time being?

    or

    Decrease in production which may eventually lead to increase in price?

     

  2. Parser
    March 15, 2011

    I think decrease in production and fluctuation in prices will come as tsunami waves hopefully not so dynamic but also devastating to the worlds economy. The time of recovery from the massive devastation counts as a production down time. Rolling blackouts will have longer impact because repairing nuclear power plants will take longer. Transportation infrastructure by railways, roads and airports is highly damaged affecting vast portion of northern Japan. While Japan consumes many electronic components they export huge number in final products to the world market. It is possible that European countries, US and other nations would take manufacturing of critical components away from Japan, or Japanese companies would invest outside Japan. All that depends on recovery time to be estimated within next few weeks. 

  3. Adeniji Kayode
    March 15, 2011

    As we hope for quick recovery for Japan, Could this also mean a chance for another consumer electronics manufacturer to spring up?

    Could this also mean electronics from other countries will start to dominate market or begins to sell more?

  4. Barbara Jorgensen
    March 15, 2011

    Thanks, Jim, for a balanced and well-reasoned forecast. We are all hoping for the best.

  5. mario8a
    March 15, 2011

    In My experience working with companies on the semiconductor and IC area, Companies are well protected with a huge safety stock, either at the wafer or FG level, some companies are still running with IC's obsolete even five years ago, based on what I learned few days ago only 20% of the semiconductor industry of Japan is placed on the areas affected by the tsunami and been witness of their fast recovery I have no doubt they will survive this terrible natural disaster.

    After the second WW Japan invested more than 100000 million dollars to get back on track, it's too early to talk about recovery for them when they still have small after wakes and this was 5 times severe as their previous catastrophe.

     

  6. stochastic excursion
    March 18, 2011

    Very informative, and sobering, report.  NPR reported that the explosion at the nuclear power plant was a result of loss of coolant in an on-site nuclear waste container, but that the reactors had been shut down prior to the tsunami.  There was a critical mass that melted down, and if the melt-down was arrested somehow, that's good news, but theoretically cooling a meltdown is a next to impossible engineering feat.  Meanwhile on the US west coast, the suspended isotopes are projected to make landfall, and we're watching the effects without much of a contingency plan.  Germany has taken an undeniably prudent step with their nuclear program and a like action on the part of the US government is forthcoming.

  7. seel225
    March 19, 2011

    Thanks Jim for the informative article about the impact of Japan's Earthquake on eletronics market. The damage caused by the earthquake is very extreme. As there is huge power supply loss, the electronic manufaturing companies will rollback all their operations. I hope it may take couple of months to get back to normal track.

    Hope japan recover well as soon.

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