Japan's Quake, Tsunami Could Disrupt Semiconductor Supplies, Raise Prices

The massive 8.9 earthquake and subsequent tsunami which struck Japan late Thursday night has the potential to disrupt the world's semiconductor supply chain for several weeks.

Manufacturers and industry analysts are attempting to understand the damage to Japan's semiconductor industry in the wake of the earthquake and tsunami which combined killed hundreds of residents of Japan's eastern coast north of Tokyo and caused an emergency shutdown of one of that country's nuclear reactors.

The quake, which registered 8.9 on the Richter scale and which caused a massive tsunami seconds later, was about 10 times stronger than the September 1999 Taiwan 7.6 earthquake that disrupted the LCD and computer components supply chain.

Japanese manufacturers produce over 40 percent of the world's NAND Flash and about 15 percent of the world's DRAM, and is a major source of chips used in producing consumer electronics products, according to an analyst brief by Objective Analysis, a Los Gatos, Calif.-based analyst firm.

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Should part of Japan's semiconductor manufacturing be shut down for two weeks, the result could be a dramatic increase in prices for the components, Objective Analysis wrote.

"Objective Analysis anticipates phenomenal price swings and large near-term shortages as a result of this earthquake. Demand will be impacted as well since many electronics manufacturers are in Japan, and their consumption of semiconductors will be halted until earthquake damage is repaired," the analyst firm wrote.

IHS iSuppli, an Englewood, Colo.-based analyst firm, wrote in a Friday News Flash that Japan in 2010 accounted for 13.9 percent of all global electronic equipment factory revenue, 16.5 percent of global consumer electronics equipment factory revenue, 10.2 percent of worldwide data processing revenue, and more than one fifth of global semiconductor production. However, IHS iSuppli wrote, those figures also include production of Japanese companies in other countries.

IHS iSuppli said that Japan's two major DRAM fabs, which account for 10 percent of the world's supply of DRAM, seem to have been spared direct damage.

Japan also produced about 6.2 percent of the world’s large-sized LCD panels in 2010, but only one large LCD fab may be in the area of the quake. "The more important impact may be on Japan’s production of components for LCD panels," IHS iSuppli wrote. "Japan accounts for a very high share of components uses in LCD panels and LCD-based products, including glass, color filters, polarizers, cold cathode fluorescent lamps (CCFLs) and light-emitting diodes (LEDs)."

While the earthquake and tsunami may not have caused direct damage to production facilities, they will likely cause a major disruption to the supply chain, IHS iSuppli wrote.

"Suppliers are likely to encounter difficulties in getting raw materials supplied and distributed and shipping products out. This is likely to cause some disruption in semiconductor supplies from Japan during the next two weeks, based on the IHS iSuppli preliminary assessment of the situation," the analyst firm wrote.

Meanwhile, the BBC reported that Sony has six factories in the region struck by the quake, and that all six were closed. Those factories produce components for other products like Blu-ray players, the BBC said.