IT Supplies Not Disrupted By Japan Earthquake, So Far

Japan's massive earthquake has yet to have a significant impact on the pricing and supply situation for key components used in IT equipment, but factory shutdowns and infrastructure issues in the area directly affected by the earthquake could be felt soon in the supply chain, several analysts reported this week.

Japan, a major source of the components used in a wide range of IT products, on March 10 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.

Several Japanese IT factories were either directly damaged by the earthquake and tsunami or were purposely shut down as a result of power outages, and even as they restart production will need time to return to normal.

Except for a few components such as NAND memory, which is used in the production of SSDs and hard drives, most Japanese component production is done in the southern part of the country, well outside the earthquake and tsunami impact zone.

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However, a certain part of the production of materials that go into those components is manufactured in the stricken area, raising the potential of shortages that could impact downstream manufacturing over the next few weeks as inventories are deleted, according to several analysts.

Morgan Stanley, in a research report released on Tuesday, wrote that Japanese semiconductor manufacturers as well as the manufacturers of some of the materials that go into semiconductors were impacted by the earthquake and tsunami.

However, inventories of many of these products are sufficient for the near-term, and in many cases will see the industry through until full production is restarted, Morgan Stanley wrote.

For instance, Japan accounts for about 20 percent of the world's semiconductor production, and for between 50 percent and 60 percent of the raw wafers used to build semiconductors and about 90 percent of BT resin, which is used for packaging semiconductors.

The earthquake caused between 15 percent and 20 percent of the world's semiconductor wafer supply and a large part of the BT resin supply to go offline, but inventories of such materials form a buffer that should enable semiconductor makers to either find alternative sources or component makers to shift production to other areas, Morgan Stanley wrote.

Another analyst firm, IHS iSuppli, on Monday reported that that the Japanese earthquake resulted disrupted production of about one-fourth of the world's silicon wafers used to make semiconductors, which could have a major impact on worldwide semiconductor production.

IHS iSuppli also reported that two manufacturers which account for 70 percent of the worlds' supply of copper-clad laminate (CCL), the raw material used to manufacturer printed circuit boards, have stopped production for at least two weeks, but that inventories available to electronics manufacturers are sufficient as long as production starts no longer than two weeks later.

Morgan Stanley also reported that NAND memory spot prices have risen 15 percent, and DRAM spot prices 8 percent, since the quake. While memory makers typically carry four to eight weeks of inventory, which should help keep prices in check, delays in restoring electricity and transportation could further impact prices, the analyst firm wrote.

The NAND market in particular was supply-constrained before the Japan earthquake and tsunami thanks to smartphone and tablet PC demand, and output will be reduced by about 30 percent over the next two months, Morgan Stanley wrote. DRAM inventory at the OEM level was low before the quake, and spot prices should continue rise, the analyst firm wrote.

Next: Batteries And Flat Panel Displays

While Japan is a major source for the lithium-ion battery cells used in portable electronics, manufacturers there report relatively low damage to manufacturing. That, combined with excess capacity outside the quake area and a 45-day inventory at leading battery pack manufacturers means that the impact of the quake on the battery market should remain limited, Morgan Stanley wrote.

Production of a few key raw materials used for manufacturing flat panel displays has been disrupted, but panel makers have a few weeks of inventory and so may be able to weather the disruptions for the near term, reported analyst firm DisplaySearch in a Tuesday blog post.

Those materials include Nitrogen Triflouride (NF3) gas used for cleaning chemical vapor deposition chambers in TFT LCD, semiconductor, and amorphous silicon thin film solar cell production; Indium Tin Oxide used as a transparent conductor in TFT LCDs and touch screens; green pigments used for color filters; and connectors for power and graphics signals in LCD modules, DisplaySearch wrote.

"In most of these cases, panel makers are holding at least a few weeks of inventory, giving them some time to locate alternative sources," DisplaySearch wrote.

System builders are watching the component supply and pricing situation, but for now report little impact from the Japan earthquake and tsunami.

One system builder, who requested anonymity, said that so far only memory suppliers are reacting to the quake by increasing prices or holding up shipments.

However, the system builder said, there are questions about whether component supplies or supply chain issues could impact the release of some upcoming products. For instance, he cited the upcoming release of new 3-TB hard drives from Seagate, which rely on materials made in Japan, or the iPad 2, production of which depends in part on Japanese memory.

CTL, a custom system builder which imports a lot of components from China, Taiwan, and South Korea, sent a survey to its suppliers after the quake to get information on the impact to their output, said Erik Stromquist, executive vice president of the Portland, Ore.-based company.

"We've been seeing some delays in the 'ingredient' parts in LCD panels," Stromquist said. "Suppliers told us we can expect some prices to go up, and some delays. And memory prices shot up after the quake, but are now stable."

Overall, the impact to component supplies has been limited except for the memory prices, Stromquist said. "But in the long term, component prices will go up," he said. "So we have been increasing inventory."

Stromquist said CTL is also seeing concerns from its customers. "We're getting pressures from some of our overseas customers asking for statements," he said.

Glen Coffield, president of Cheap Guys Computers, a Longwood, Fla.-based custom system builder, said he has seen no supply issues with motherboards or memory, and that prices are still fairly stable.

However, Coffield said, prices sometimes act contrary to what might be expected. For instance, when oil production was curtailed in the wake of the Gulf of Mexico oil spill, oil prices fell, but then rose after the clean-up and production restarted. "Sometimes, it's like someone is out there playing with billions of dollars," he said.