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TI Sales Will Take a Hit From Japan Earthquake

It's clear the semiconductor and electronics market will suffer from supply disruptions as a result of the earthquake that devastated Japan last week, but the likely extent of the implications for individual businesses in the sector will most likely remain unknown until sometime in the second quarter of the year.

One of the few companies that have announced the direct impact of the earthquake and the resulting tsunami on their operations is {complink 5703|Texas Instruments Inc.}, which said one of its fabs in Japan “suffered substantial damage,” and noted restart of the plant and a second one in Japan could further be impeded by disruptions to its power supply from the regional electricity grid.

Analysts believe TI may not be able to adequately restore production to the site until the second half, which could hurt both first- and second-quarter sales, although the most likely impact would not be felt until sometime during the June quarter. For instance, Doug Friedman at Gleacher & Company believes the closure of the TI fab in Miho could reduce 2011 sales by as much as $500 million.

“We can no longer expect a strong finish to first quarter 2011,” Friedman said in a report. “We now believe first quarter [sales] will be at the low end of the range or slightly below. We believe our earnings per share estimate may move down by 4 to 5 cents for the first quarter.”

TI was very detailed in its announcement regarding the Miho fab that was damaged in the earthquake. However, the company was not as explicit in stating how sales would be directly affected. The Miho fab, according to TI, accounted for about 10 percent of the company's total revenue in 2010, and about one third of its output was for digital light processing (DLP) products, with the remainder being analog semiconductor.

It's highly unlikely TI could yet measure the exact toll on sales, anyway, since the company is already trying to increase production at other fabs to compensate for the loss of output from Miho. TI said it can quickly transfer up to 60 percent of the Miho fab production to other facilities and is trying to identify other sites that can increase production to satisfy demand.

According to the company statement:

    TI expects to incur previously unexpected expenses in the first and second quarters for cost of recovery. Multiple factors will affect revenue loss, including TI's ability to move production to other factories, existing inventory from which to meet customers' needs, the level of demand from customers taking delivery of products in Japan, and the ability to incrementally increase production in each month at Miho.

Aside from the potential for missed sales, TI's financial performance will definitely suffer as a result of the additional costs the company must incur to recheck the fabs, carry out repairs, restock the facilities, and compensate workers for the extra working hours required to complete these unbudgeted tasks. In addition, the immediate shutdown of the fabs following the earthquake means inventory classified as work-in-progress must be scrapped since most of this cannot be reused — TI estimates it was able to salvage only 40 percent of the work-in-progress at the Miho fab.

The earthquake also damaged a second TI fab in Japan, although the impact was limited. The company said it restarted production at the Aizu-wakamatsu plant, but full production will depend on stability of the power supply.

5 comments on “TI Sales Will Take a Hit From Japan Earthquake

  1. DataCrunch
    March 15, 2011

    Bolaji, I wonder what the impact to TI would have been if the company hadn’t taken the initiatives to increase manufacturing capacity over the last couple of years as you mentioned on your recent article, “TI Makes Big Bet on Growth”. 

  2. Adeniji Kayode
    March 16, 2011

    Could it be that the electronic companies affected by the natural disaster in Japan is as a result of lack of foresight.

    Is it not too sensitive if larger percentage of our electronics,IC and components come from Japan alone.

    Is there anything like “backup plan” for such a time like this?

    Or Is it  that we never expect Japan to come to a time as this?

     

  3. Anand
    March 16, 2011

    Bolaji,

     I am surprised at the number of Fabs and manufacturing units present in Japan. I think its high time companies should start thinking to diversify the manufacturing units to different places so that the in the event of catastrophy supply chain is not affected. Luckily for TI it has acquired couple of fabs during recession. As you pointed out these fabs can be used to compensate for the loss of output from Miho, but the bigger question is , what will be the long term solution  ?

  4. Adeniji Kayode
    March 17, 2011

    I think the best lesson to learn from Japan Earthquake is not to be putting all our eggs in one basket.

    i feel divisifying manufacturing units to different places to be the best option.

  5. saranyatil
    March 19, 2011

    Natural calamities in Japan are affecting each one in a different fashion. the situations of the calamities are literally getting worst day over day . there will be impact on TI sales not only from the attack also stop of symbian os will add on to it. but by now they must have found out some alternative to sustain their sales mark.

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