Taiwan In Turmoil

Aftershocks from the earthquake that hit Taiwan last week will be felt around the world as the flow of components and peripherals out of the region gets disrupted.

The 7.6 earthquake struck central Taiwan, about 90 miles south of the capital city of Taipei and close to the Hsin-chu Industrial Park, home to some of Taiwan's most advanced high-tech companies.

These include the world's two largest IC fabrication plants and several ASIC and other semiconductor manufacturers, which produce more than 70 percent of the world's graphics chips and 40 percent of the world's chipsets, according to analysts at ABN AMRO Inc., Chicago. The island also supplies about 10 percent of the world's DRAMs, said Kathleen Maher, analyst at John Peddie Associates, Tiburon, Calif.

A shortfall in the island's production of either super-I/O, LAN, audio, or modem ICs also could slow production of motherboards in both Taiwan and China, said Sam Tsai, president of Elitegroup Computer Systems Corp. (ECS), Fremont, Calif.

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This comes on top of existing shortages in memory chips caused by manufacturers switching to higher-capacity models, as well as a shortage of BX chipsets from Intel Corp., Santa Clara, Calif., said motherboard vendors.

Any shortage caused by the quake could have a serious affect on the U.S. IT industry, said Jeff Matthews, general partner at Ram Partners LP, Greenwich, Conn. "First, we're going into the heaviest demand part of the year for PCs. Second, we've really skinnied down the inventories in the channel. Everybody's running to just-in-time supplies, which means there's not much buffer stocks," he said.

The effects of the earthquake already are felt in the channel.

Even before the quake, about 25 percent of build-your-own VARs surveyed by CRN last month reported moderate to severe problems with memory chip availability.

That shortage is worse now, said Danny Breen, co-owner of Pacific Computer Inc., a San Luis Obispo, Calif.-based VAR. "Today, a 64-Mbyte generic RAM goes for $144," he said. "Tomorrow, it will be $167. Nobody has any RAM."

Memory prices already were increasing before the quake, said Allan Schroeder, vice president of product management and marketing at ASI Corp., a Fremont, Calif.-based distributor and white-box builder. "For whatever reason,cartels, dirty water, whatever,prices have been going through the roof," he said. "They were going up, but now it's compounded by this act of God."

Meanwhile, Taiwan manufacturers produced more than half of the world's supply of scanners, keyboards, motherboards, mice and monitors, as well as more than 40 percent of notebook PCs, in 1998, according to the Market Intelligence Center, a Taiwan-based research organization.

As of late last week, Taiwan's electrical power supply, including power to the IC fabs, was not fully restored, and possible cracks in local dams threatened the availability of water, a key element in IC production, said analysts. While the IC vendors' buildings seem intact, much of the work in progress may have to be scrapped, and recalibration, testing and possible requalification of production lines could delay full production for two to three weeks, analysts at ABN AMRO said.

ECS' Taiwan facilities are intact, and 95 percent of the company's motherboards are made in China, Tsai said. However, ECS has only a one- or two-week buffer of components, he said.

Compounding the problem is a shortage in BX chipsets from Intel, Tsai said. "So in Q4, I believe there will be a shortage [of motherboards]," he said.

Several Taiwan-based motherboard vendors, including Quanta Computer Inc. and Giga-Byte Technology Co. Ltd., have issued statements that their Taiwan facilities are intact. Even so, the earthquake could have a big effect on Taiwan's IT industry, said an executive at a Taiwan-based motherboard vendor. "A lot of chipsets and material is produced [in Taiwan] locally. If manufacturers are just short one component, it could affect production," she said.