This is a commentary on industry trends from Malcolm Penn, chairman and CEO, Future Horizons.
Importance of Japan
Japan is a major producer of semiconductor components accounting for around 22 percent of global semiconductor production. The Flash memory market sector – crucially mobile phones, iPads and their derivatives, digital cameras, and portable storage devices, account for approximately 50 percent of the market, almost all of which are produced by one Japanese firm, Toshiba/Sandisk.
Several of Japan’s major semiconductor companies locate their manufacturing spots in the northeast prefectures, for example Toshiba’s 8-inch wafer fab in lwate, Renesas Electronics’ factories in Aomori, Hoddaido and Yamagata, Elpedia Memory’s backend manufacturing facility in Akita and Fujitsu’s plants in Fukushima.
The effects of the devastating earthquake, which hit Japan on Friday 11th March, are already beginning to take hold on the global electronics industry. Damaged buildings and infrastructure and halts to some semiconductor fabs will without doubt have a knock on affect upon the global semiconductor supply chain, with many of the big names, i.e., Nokia, General Motors and Apple already experiencing supply shortages.
Many manufacturers, not directly hit by the earthquake, have experienced power failures interrupting production; just a microsecond power supply glitch can result in the scrapping of weeks of in-process production, and with manufacturers no longer holding inventory it will impact IC supply availability in Q2. To what extent, still remains to be seen. The impact will be felt both in the long and short term, affecting not only the semiconductor supply chain but nearly every other industry imaginable, as it is very rare these days to find an industry which is not reliant on chips.
As in any shortage situation, component price increases are inevitable and this has already happened in memory, although it is not yet clear how much of this is panic profiteering and how much is sustainable. But shortages are inevitable and recovery due to the long production cycle times and already tight capacity – will not happen over night.
The automotive semiconductor market grew 37 percent in 2010, clearly leaving the problematic 2009 behind. However the recent earthquake in Japan has once again awoken auto manufacturers concerns about the industry. Even before the earthquake purchasing managers had expressed concern about supply levels; inventories were unusually low, resulting in heightened concern from purchasing executives around the world.
It is difficult to estimate the extent auto manufacturers will be affected, but following an official announcement from Japan that car production will be down 33 percent from its normal monthly production level of 750k cars per month to 500k it looks as though the 2010 market growth may be short lived.
Toyota Motor Co, the worlds largest auto manufacturer, said all 12 Japanese assembly plants would remain closed until at least 26th March and it was not sure when they would re-open. Production lost between 14-26 March would be about 140,000 units.
Silicon wafer supply
The earthquake has resulted in the suspension of one-quarter of the global production of silicon wafers used to make semiconductors, this has significantly impacted the supply of silicon wafers, the raw materials from which all kinds of chips – from memory to processors are made. Japan accounts for more than 40 percent of the world’s NAND and 15 percent of the world’s DRAM production.
The suspension of production at ShinEtsu Chemical Co’s Shirakawa facility which accounts for 20 percent of global silicon semiconductor wafer supply has impacted heavily on the Memory market with DRAM and Flash Storage being hit the hardest.
The suspended production of copper-clad laminate (the raw material used to make printed circuit boards) by Mitsubishi Gas Chemical and Hitachi Kasei Polymer, who account for 70 percent of production, will heavily hit the supply of the raw materials used to make printed circuit boards in the short term. However, industry experts believe there are enough materials already in the global supply chain for it to withstand this suspension as long as the closure does not run over the planned two-weeks.
Prices of LCD panels and memory chips may rise as the earthquake leads to potential shortages. Panasonic’s factory producing LCD TV panels may have been affected, and that may influence the availability and prices of products. Hitachi has not determined when its LCD display unit can resume operation at its factory in Chiba prefecture. The manufacturer is considering using its alliance Taiwan-based Chimei Innolux Corp to minimise a possible production decline.
There has also been some damage at Panasonic’s LCD factory in Mobara, Chiba prefecture, Panasonic has not determined when to restart the factory. Osaka-based Panasonic aims to avoid an impact on LCDpanel supply by using an LCD plant in Himeji, western Japan.
Many chip manufacturers have claimed that they are capable of activating alternatives if necessary. In addition, wafer inventory among companies remains at a sufficient level of two to three months. However, if the Shin-Etsu Handotai factory -- that was responsible for producing approximately 22 percent of total silicon wafer demand in the world in 2010 -- cannot return to normal supply levels in the short term, the semiconductor market will struggle with wafer shortages later in the year.
This disaster will bring to light the fact that many multinationals have become too dependent on a single source of production and it is likely we will see in the future global companies spreading their suppliers over more countries in order to reduce reliance on a handful of production powerhouses.