Component Supplies After Japan Quake Uncertain

The potential for shortages of key IT components including memory chips and LCDs resulting from Friday's earthquake and tsunami in Japan is very real, but the actual impact to prices and availability of those components in the long term has yet to be seen, according to several system builders and analsysts.

Japan, a major source of the components used in a wide swath of the IT industry, on Friday suffered a massive 9.0 earthquake off its eastern coast followed by a tsunami which combined to cause thousands of deaths and is threatening the country's nuclear power industry.

While several Japanese IT factories were either directly damaged by the earthquake and tsunami or were purposely shut down as a result of power outages, the impact on IT component prices so far appears to be limited.

Post-earthquake component price increases are just as likely to have been caused by increased IT demand resulting from this year's economic recovery, as well as by price speculation in the supply chain, industry observers said.

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Much of Japan's IT manufacturing industry is concentrated in the western and southern parts of Japan, which were not directly affected impacted by the earthquake and tsunami.

Also, many of the factories in the impacted produced older generations of IT components, and so they can be supplemented by production elsewhere.

Even more important to the supply chain is the fact that inventories of some of those components, especially DRAM memory and LCD panels, are healthy, which helps mitigate potential problems caused by factory slowdowns or shutdowns.

System builders on Tuesday said that they have seen little or no increase in DRAM prices resulting from the earthquake and tsunami, and that any increases appear to be more the result of speculation than of any production issues.

Todd Swank, vice president of marketing at Northern Computer Technologies, a Burnsville, Minn.-based system builder, said that prices for DRAM chips from memory vendor Kingston Technologies dropped to their lowest price on Friday, and have since risen slightly.

However, Swank said, the rise in price seems to be more related to an increase in demand caused by the economic recovery than to the tragedy in Japan. "It seems like demand has been spiking lately," he said. "Everybody has been focusing on growth."

The current situation is nothing like 1999, when a massive earthquake struck Taiwan and caused DRAM prices to spike by six times to eight times, Swank said. "Since then, there have been over 50 times when people say the price is spiking, only to see no such thing," he said.

Even so, Swank said Nor-Tech is taking no chances.

"I don't think anything will happen yet on spot pricing," he said. "My guess is, we'll see some pricing upticks. But we are seriously considering taking a stocking situation with DRAM, just in case."

Joe Toste, vice president of marketing at Minneapolis-based system builder Equus Computer Systems, said that DDR-3 memory has recently been at an all-time low, and that prices were expected to rise with a recent increase in demand.

"For the long-term, you better be prepared for prices to go up because of demand," Toste said. "The guidance we've been getting is that demand is up. But supply is still greater than demand. It's all part of the regular supply-demand cycle."

Toste said that LCD prices have already been rising from their recent lows even before the earthquake and tsunami struck Japan.

Other system builders said they have seen an impact.

Next: Impact Hard To Assess

Andrew Kretzer, director of sales and marketing at Bold Data Technology, a Fremont, Calif.-based system builder, said he has seen prices for DRAM, hard drives, and anything that might use Flash memory jump anywhere from 10 percent to 30 percent since the earthquake and tsunami.

Another big system builder, who preferred to remain anonymous, said some vendors are saying they need to wait for further assessments before moving on prices, but that Flash memory components prices will go up by an unknown amount, resulting in spikes in memory and SSD prices.

"Some vendors may be holding off shipment until they know what the market looks like first," the system builder said. "Our market has definitely been impacted."

There should be little impact to the hard drive market because most production is done in Southeast Asia, with little production done in Japan, the system builder said.

Michael Schwab, co-president of D&H Distributing, said the impact of the earthquake and tsunami was mitigated by the fact that only a small part of the finished IT products sold worldwide are made in Japan proper because of high production costs there.

Schwab said he saw prices NAND memory jump between 7 percent and 13 percent on Monday, and then pull back, which he said indicates speculation could be an important factor.

"It's hard to say if speculation or true disruption in supply is driving prices," Schwab said. "Some manufacturers are allocating supply."

Rolling blackouts in Japan mean that production lines shut down may not be restarted right away, Schwab said. On the other hand, vendors have inventory to cover a week or so of demand, he said.

"What will happen in the long term is to be determined," he said. "The risk is there. The reality of the situation will take some time to measure."

The flat panel display industry is facing the prospect of a slowdown in production due to the earthquake, according to a blog post by David Hsieh, vice president for the greater China market at analyst firm DisplaySearch.

Hsieh wrote that the majority of TFT LCD factories are located outside of the area impacted by the earthquake and tsunami, and that Hitachi Display, NEC, Toshiba, and Epson plants in the impact area appear to have not been damaged. However, he wrote, those plants have likely been shut down to gauge possible damage and to recalibrate production. In any case, those plants are relatively small, and probably would not have much of an impact on total TFT LCD production, he wrote.

There are LCD color filter lines in the quake area, but they feature older technology, and so should not have a significant impact on the industry. Production lines of other LCD components may have been impacted as well, but nothing that would hurt the LDC industry in the long term.

Power outages and transportation problems in northeastern Japan could also impact LCD production, Hsieh wrote.

Hsieh wrote that the earthquake was also felt in Korea, where some sensitive LCD production equipment stopped for a short time. The manufacturers are apparently calibrating their equipment, he wrote.

Overall, Hsieh wrote, there does not appear to be any major impact or damage to the LCD supply chain.

"However, the uncertainly and insecurity resulting from this disaster might undermine consumer and business confidence. Along with concern about oil prices, the earthquake in Japan might further psychologically influence consumers and businesses, though in a subtle manner. In summary, we think that the impact of the earthquake on the TFT LCD industry could be more damaging psychologically than physically in terms of the FPD industry," he wrote.

Next: Impact On Notebook Battery Production

Taiwan-based electronics news site Digitimes on Tuesday reported that another area of concern is the production of batteries used in notebook PCs.

Taiwan-based notebook battery makers currently have strong inventories of Japanese-made battery cells, and demand from downstream partners remains relatively week, meaning that the shutdown of Sony's battery cell factories should not have a major impact on supply, Digitimes wrote.

However, it wrote, continuing brownouts and transportation problems could have an impact in the long term on the production of not only Sony, but also Sanyo and Panasonic.

Zewde Yeraswork contributed to this article story.