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The Impact of Japan's Earthquake on the Electronics and Semiconductor Industries

The strongest earthquake ever recorded in Japan occurred Friday at 2:46 PM local time.  The earthquake and resulting tsunami were so powerful, the island shoreline was moved 8 feet!  Following the massive 8.9 earthquake was a tsunami that unleashed further devastation.  In the ensuing hours, additional damage reports coming from Japan reveals how damaging this quake really was.  Two nuclear facilities with a total of five reactors received severe damage.  One facility that contains three reactors is an older GE design commonly found in the U.S. as well.

As of today, there have been two explosions.  An explosion shattered the building housing the nuclear reactor on Saturday.  Although government officials are claiming that the metal containment vessel surrounding the reactor is still intact, clearly the situation is getting worse, not better.  Rods have been exposed twice, resulting in a partial meltdown.  At this point, the best case scenario will be to stop the nuclear reaction, cool the facility down, encase it in concrete, and abandon the facility.  This would leave Sendai in an electricity deficit from the closure of 3 to 5 reactors.  This certainly will cause some problems for the semiconductor and related manufacturing facilities in this area as they are electric power hogs.

Heavy damage is reported within a 200 km radius of Sendai.  One of Japan's largest oil refineries is on fire.  There were reports of multiple fires in Tokyo which is almost 200 miles from Sendai.  Gas lines in the area have also been severed.

Japan is a significant producer and consumer of semiconductors.  In addition to memory products such as NAND flash, Japan is the largest supplier of discrete devices, including such products as power MOSFETs.  These products are used in all electronic devices; NAND flash is a key component for many consumer and communication products.  A small disruption in the supply chain can cause significant upward pricing for at least a limited timeframe.

The Semico Fab Database lists over 100 fabs in Japan.  Freescale has a fab in Sendai, although our records indicate the company intends to close the Sendai fab by the end of this year.  The fab produces microcontrollers and sensors.  Renesas seems to be enduring the most impact as they maintain several fabs in the Tokyo area.  The company has closed several fabs indefinitely.  Renesas is a major microcontroller supplier.  Toshiba, a key NAND supplier, maintains their Flash Alliance and Flash Partners fabs in Yokkaichi in the Mie Prefecture over 200 miles south of Tokyo.  While Toshiba shut down a number of fabs for inspections, they are now back in production. Toshiba is SanDisk’s main manufacturing partner.  Most of the other semiconductor fabs are located in the southern regions of Japan.

Many fabs halted production as a result of the disaster.  Financial impact would include any equipment damage and loss of work in process.  Companies will assess any damages and will most likely resume production based on availability of reliable electricity.  Rolling blackouts could be the biggest challenge running wafers through the fab.

In addition to electricity supply, there was some concern over the future supply of silicon wafers.  ShinEtsu and SUMCO both maintain facilities in Japan and supply a significant portion of the silicon wafers used in the worldwide production of semiconductors.  Many of the large manufacturers have released statements indicating no issues relating to silicon wafer supplies.  Wafer production at some facilities has resumed as the companies work around the rolling blackouts.

Semico believes the quake may have significant impact on Japan’s semiconductor production this quarter but the impact should be minimal as it relates to total world production for the year.

The good news is that it is early in the year, and there is still time to recover for the peak production months of electronic products that typically occur in the second and third quarters of each year.  Towards the end of last year, inventories were starting to grow, and there was a concerted effort by companies to reduce inventory levels.  It would now appear that a little bit of excess inventory in products that come from Japan will be a windfall for those companies.

There could be a short term positive impact for GLOBALFOUNDRIES.  Companies may review the vulnerability of their foundry supply partners susceptible to earthquakes.  GLOBALFOUNDRIES’ multiple fab locations is a definite plus.  But our memories are short.  Even after the 1999 earthquake in Taiwan, companies continued to utilize the foundries in Taiwan.

Japan is a significant consumer of semiconductors.  According to SIA/WSTS data, Japan accounted for 19% of total worldwide discrete sales and 14% of total IC sales.  This represents Japan’s semiconductor consumption and has significant impact on production of electronic systems.  Production of automobiles, consumer electronics and certain industrial parts for aircraft and heavy equipment could be delayed.

Jim Feldhan, President

Joanne Itow, Managing Director

Adrienne Downey, Director of Technology Research

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