Component Supplies After Japan Quake Uncertain

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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.

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

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