Last week’s earthquake in northern Japan has caused production delays and work stoppages throughout the PC industry as manufacturers including Lenovo, Toshiba, and Apple may face supply shortages and price increases -- and possibly panic buying.
Some Japanese IT factories were damaged by the earthquake and subsequent tsunami, while others were shut down as a result of ensuing power outages and concerns about aftershocks -- but the impact on the industry itself is only now starting to come to light. According to a report from IHS iSuppli, some semiconductor facilities in Japan have suspended manufacturing, as any earthquake over 5 on the Richter scale causes them to shut down automatically. Aside from the devastating impact of the disaster itself, the earthquake has caused tremors among system builders and others in the distribution channel that rely on product supply from Japan.
“Unequivocally people are talking about it -- distributors, memory manufacturers, partners are all talking about it,” said Steve Bohman, vice president of operations at Columbus Micro, a Columbus, Ohio-based system builder. “What I haven’t seen is any literal effect. After the earthquake, I fully expected prices in the memory market to spike, but a week later, aside from a few panic buyers, people are standing pat and memory prices are soft.”
Bohman said it was difficult to gauge the impact from the other side of the world. Still, he said he has heard that hard drives and optical drives in particular will see the impact of the disaster. “I fully expect to see prices go up before too long and to see shortages -- real or false -- in Flash, DRAM, hard drives and optical drives, and also LCD panels. So we shall see,” he said. “I’ve been in the industry for 20 years and I’ve seen earthquakes and fires in factory and all kinds of excuses for shortages or price increases, and you just never know if it’s real or imaginary. Or in the case of a natural disaster, you don’t know if it will affect the industry or if the industry will take advantage of it to raise prices.”
In fact, according to IHS iSuppli, several OEMs could end up panic buying from semiconductors and electronic components based on forecasts of supply disruption, as distributors experience a surge in orders from customers seeking to ensure their inventory. “I certainly expect for people to buy up in anticipation,” Bohman said. “I don’t see why you would think prices are going to drop. In my opinion that doesn’t make any sense. They are probably at bottom for the foreseeable future so why not start buying. And that’s how it starts.”
According to Nick Gold, director of business development at Chesapeake Systems, a Baltimore-Md. based system builder, the earthquake could have far-reaching effects. “The crisis in Japan is going to affect MANY aspects of the global technology industry before long,” Gold said. “I am certainly expecting supply issues across the board with fully-integrated systems, as well as individual components such as hard drives, RAM, etc. over the coming weeks.”
Gold said he expects other suppliers outside of Japan will experience a rapid increases in demand, which will be difficult for them to meet. “Even if manufacturers are located outside of Japan, individual components for various types of systems may be sourced in Japan,” he said. “And, even if this is not the case for any given product, demand pressures placed on other manufacturers who are located outside of Japan, who now need to supply more customers than they normally would because of supply problems with Japanese manufacturers, will tend to affect products across the board.”
Next: Impact On Lenovo, Apple, And Others
IHS iSuppli also reported that global semiconductor inventory levels in Q4 of last year reached a two-and-a-half year high, which it says will lessen whatever impact supply disruption in Japan has on the industry.
In fact, there’s some speculation that certain players within the industry could see benefit as others struggle. “I do not see any immediate impact [from the earthquake],” said John Convery, executive vice president of vendor relations for Redmond, Wash.-based Denali Advanced Integration. “I see vendors like HP having tremendous supply chain CLOUT because of their scale and buying POWER to secure common components across their entire portfolio from the Client to the Data Center to the Printer. HP has a major competitive advantage here.”
The same cannot be said for most component makers. China-based manufacturer Lenovo, whose extended-life batteries are made in Japan, is concerned about shortages, as Lenovo CEO Yang Yuanqing confirmed on Thursday at a conference in Shanghai. “In the short term there won’t be much impact. We are more worried about the impact in the next quarter,” Yang reportedly said.
According to a Reuters report on Thursday, Toshiba after the earthquake closed its crystal display product facility in Japan for one month. Meanwhile, its competitor Hitachi also said production of small form factor LCDs at its Japan-based facility has been suspended, as a result of ensuing damage and power outage. Various other fabrication plants have temporarily shut down.
As prolonged disruption to production and regular business operation fuel concerns over supply, IT industry share prices have gone down and uncertainty is on the rise. “We haven’t gotten any notices, any confirmations, or been informed of any delivery delays,” said Skip Carruth, president of Temple, Texas-based McLane Intelligent Solutions. “We purchase product and resell it on demand so we have a secondary impact, as we’re dependent on the supply channel to anticipate demand and make preparations. Any of our customers with equipment on order that haven’t received it yet has been given notice that we don’t know if the situation in Japan is going to impact future shipments.”
According to IHS iSuppli, the aftermath of the earthquake also includes shortages in the supply of Apple’s new iPad 2 device, as its electronic compass and battery are built in Japan, as are other iPad components. However, given how recently Apple’s iPad 2 was released and given high sales forecasts from analysts such as Gartner, supply may not be as much of a concern for Apple distributors as demand. “We have no information from Apple,” Michael Oh, President of Boston-based Apple reseller Tech Superpowers said. “As far as what we in the channel know, Apple’s iPad 2 availability is primarily being driven by huge demand rather than supply-side restraints at this time. That’s not to say it couldn’t happen theoretically, depending on how tight Apple’s supply chain is, but at this point we have no idea.”
Oh added that the popularity of iPad 2, along with the great number of Apple distribution channels, is itself fueling a large amount of uncertainty. He said Apple is traditionally a company that does not describe uncertainty, but will instead simply say if the timeframes have moved or not, while making sure it has all necessary components pre-ordered in quantity.
According to IHS iSuppli, the iPad 2 includes at least five components from suppliers in Japan: Toshiba’s NAND flash, Elpida’s DRAM, AKM’S electronic compass, as well as a system battery built by its own subsidiary in Japan and a touch-screen glass overlay from Asahi Glass.
Next: Impact On The Workforce in Japan
“I don’t know what Apple’s reliance on Japanese manufacturing is,” said another Apple partner, David Doyle, vice-president of sales at Vancouver-based Simply Computing. “If Apple does rely on Japan, then they’re going to feel it because normal work isn’t happening.”
Doyle said he spent seven years in Japan and has several friends and family members who live there, many of whom have left temporarily due to the gravity of the situation. “It’s much more disruptive than we’d imagine,” Doyle said. “It’s affecting people who are normally productive, electronics companies have cancelled travel for all employees, and foreign nationals are getting out.”
Meanwhile, various online reports say suppliers are facing problems with employee absences due to interruptions in the transportation system, as well as the supply of electricity.