beyondbrics

In the immediate aftermath of the disastrous earthquake and tsunami which hit Japan last Friday, assumptions on the impact for the global manufacturing value chain were mostly guesswork.  But that is changing now.

Spot prices of certain semiconductors have started soaring on fears of shortages caused by supply disruptions of certain components from Japan.  Prices of NAND flash chips – used in smartphones, cameras and a range of other electronics – were up 20 per cent on Monday, according to iSuppli, the electronics research firm.

“While there are few reports of actual damage at electronics production facilities, impacts on the transportation and power infrastructure will result in disruptions of supply, resulting in the short supply and rising prices,” it said.

While the vast majority of electronics products are nowadays made in China, there is huge potential for disruption because Japanese suppliers have a dominant position in some core high-end parts such as passive components, glass for flat panels and, most importantly, the silicon wafers that chips are made from.

All these components are parts used in a broad array of different technology products. For passive components and glass, there are alternative sources in Taiwan and South Korea, which should ensure that all top-tier manufacturers of panels or handsets can get supplies. “Most likely some smaller manufacturers will end up facing shortages,” says Andrew Lu, head of semiconductor and TFT sector research in Asia ex Japan for Barclays Capital.

But things are more serious with silicon wafers, a product for which Japanese companies hold a 60 per cent global market share and which is mostly made in factories in Japan.

Even though there are no reports of silicon wafer factories having been hit or destroyed in the quake and subsequent tsunami, even the threat of rolling power blackouts will keep those factories switched off.  One silicon wafer takes more than three weeks to make from start to finish, and if the line stops during that process, the product is wasted.

“Inventories should last for about two weeks. This suggests some of the shortage could be offset using existing inventories,” says Mr Lu. “However, if power outage and transportation problems cannot be resolved within the next two weeks, we could see a larger disruption and blank wafer cost increases.”

Intel said on Monday it was working to address logistics issues in Japan but was not suffering any supply problems at present, with other sources of materials available in other countries. “Our supplier base is fairly diverse in Japan as well and most of the impact [from the quake] is being felt in the north-east of the country,” said a spokesman.

Additional reporting by Chris Nuttall in San Francisco