Japan Earthquake Predicted To Cause Semiconductor Shortages - InformationWeek

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Japan Earthquake Predicted To Cause Semiconductor Shortages

Damage to fabrication plants in Japan, home to more than a fifth of worldwide semiconductor production in 2010, is likely to cause shortages and price swings.

The massive 8.9 earthquake that has caused widespread devastation in Japan is expected to cause worldwide shortages and severe price swings in some semiconductors manufactured in the island nation, according to some analysts.

The electronics expected to be most affected by the 8.9 quake that struck Friday include semiconductor wafers used in making microprocessors, NAND flash used for storing music, video, and other content in handheld devices, and DRAM, which is the system memory in PCs. More than 40% of the world's NAND and 15% of the world's DRAM are made in Japan, according to market researcher Objective Analysis.

Japan is also a major manufacturer of consumer electronics equipment, accounting for 16.5% of factory revenue last year, according to researcher IHS iSuppli. Companies headquartered in Japan also accounted for more than a fifth of the world's semiconductor production in 2010, generating $63.3 billion in microchip revenue. Such chips are used in just about all electronic devices made today.

The quake, which was centered about 80 miles off the eastern coast of Japan's main island Honshu, triggered a 23-foot tsunami and was followed by more than 50 aftershocks. The temblor was the biggest ever-recorded in Japan. Jim Handy, analyst for Objective Analysis, says any manufacturing plant located from the coast to Tokyo could have suffered damage great enough to cause a shutdown. The extent of the damage to manufacturing facilities and the quake's impact on production is not yet known.

"There's fabs (fabrication plants) all over Japan," Handy said in an interview. "Some are close to the epicenter of the earthquake and there's been building damage all the way from the east coast to Tokyo.

"Everything that is closer to the epicenter than Tokyo and on the right side of the mountains that run through the center of Japan are candidates for being shutdown at least for awhile, if not for a long time."

iSuppli expects disruptions in the supply chain to have a bigger impact on Japan's semiconductor production than damage to manufacturing facilities. Manufacturers are likely to find it difficult to get raw materials and to ship products. "This is likely to cause some disruption in semiconductor supplies from Japan during the next two weeks," iSuppli said in a report issued Friday. The researcher cautioned that its predictions were based on preliminary estimates.

iSuppli did not make any prediction on semiconductor prices as a result of the quake. Objective Analysis did expect to see "phenomenal price swings and large near-term shortages" in NAND flash and DRAM prices.

Spikes in prices are not expected to be felt by people buying smartphones, PCs, TVs, and other electronic gear, Handy says. That's because the highly competitive consumer electronics market makes it nearly impossible to pass along such increases to the customer.

"Very little is going to get passed on to the users (of the products)," Handy says. "But what I would expect to see are shortages of anything that uses chips."

Japan accounted for nearly 14% of all global electronic equipment factory revenue last year, according to iSuppli. The products included computers, consumer electronics devices, and communications gear.

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