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Date: 14-03-11

Japan tremors and tsunami will pass through the global semiconductor industry

First of all, let us pray for less and less damage to people and critical installation in Japan.
Though Japan used to nature's furies, but this one exceeded. However this great region is robust enough to spring back to normalcy, the question is whether its going to be weeks or months. Let us hope the nuclear reactors not melt and radiation falls quickly. If we talk about growing semiconductor chip and equipment business, these tremors and the triggered tsunami in the form of economic wave will pass through the businesses of all major players in this business; the effect (both by timing and the impact) may vary.

Sony (Fukushima, Miyagi), Fujitsu (Miyagi, Fukushima and Iwate) and Renesas (Yamagata) has more semiconductor fabs close to the epicenter, even if we pray no damage to the fab, it takes some time (weeks) to get back to normal production. We can expect chip shortage resulting in delay of production lines of electronics OEMS and also much of the other major industries whose dependency on semiconductor device is increasing.

One good trend is some of the Japanese chipmakers are becoming fablite, mainly Renesas and Fujitsu. Last year Renesas Electronics said it plans to use outside foundries on all of its 28 nanometer (nm) and smaller geometry semiconductor products. In line with this change, the company has positioned the 300 millimeter (mm) wafer lines at Naka plant and Renesas Electronics Yamagata Semiconductor's Tsuruoka plant as manufacturing facilities for the company's basic products, especially for systems-on-chips (SoCs) up to 40nm, and MCUs that are expected to further miniaturize from their current geometries.

Toshiba has latest non-memory focused fabs at places (Oita and Nagasaki), which are not affected by this disaster. Good news is Toshiba has announced it has resumed operations of its main NAND facility in Yokkaichi near Tokyo. But there will be supply issues related to base materials used in fabs, where much of it is locally supplied, mainly the silicon wafers.

The impact can be both short term as well as long term affecting not only the semiconductor supply chain but also nearly every other industry, because you hardly find an industry, which don't use chips. Car production can be held by one single chip and Japan produces lot of cars and automotives. Japan has major share in semiconductor equipment, chips and consumption of chips.

At this stage let us pray first for the safety and well being of the people who can set their machines right.

According to the survey conducted by research divisions of TrendForce on information technology (IT) supply chain (publisher of Dramexchange, the earthquake which struck northeast Japan on March 11th not only seriously influences information supply chain, but also becomes an obstacle to the economic resurgence in Japan. It is expected that it will decrease the growth of other economies in the short term.

Here below are the details of this survey:

Based on the sources and check of DRAMeXchange, the semiconductor research division of TrendForce Corp., the operation of the primary nuclear power plant in northeastern Japan has come to a stop due to the recent devastating earthquakes. The residents near Fukushima I Nuclear Power Plant have been evacuated. Additionally, Unit #1 and Unit #3 have been infused with Boric acid, so these two units are now completely obsolete. The power supply of northeastern Japan has become a huge issue. Starting from Mar. 14th, the operation of the industrial area in the northeast will be severely affected, and it is expected that limited power supply or complete power outage will continue for the next two weeks. Kanto and the industrial areas in the northeast will be facing limited power supply or complete power outage, but plans on how to distribute already-limited power have been made. What's worth noting is that silicon wafer fabs, Shin-Etsu Semiconductor and SUMCO, are affected most. In addition to damage of their production lines, the power outage has forced the production to come to a stop. The traffic for areas east of Kanto has also been affected. As a result, the supply for silicon wafer will drop significantly, which will cause the global semiconductor players outside of Japan to compete for material.

According to DRAMeXchange, Shin-Etsu Semiconductor primarily provides 12" silicon wafer, and 95% of these silicon wafer is for the semiconductor industry. Shin-Etsu Semiconductor is a major wafer silicon supplier to Elpida and Toshiba.Japanese semiconductor companies are still evaluating the current situation. For the spot market, Samsung and Hynix both have also stopped providing price information. For Taiwanese companies, PSC has ceased quoting DRAM spot prices, and is now waiting to learn more about the current situation to make necessary adjustments. Nanya Tech is also waiting to take necessary action after they finished evaluating the situation. The spot price in China has started increasing because the expected supply is likely to be affected. The overall spot market will reflect the market tension after most have returned to their work on Mar. 14. Japan's devastating quake will affect the production of DRAM. Especially for PC and system manufactures, they need to be more proactive in DRAM inventory for the upcoming peak season, so that the outlook for the contract market will start to look rosy.

Toshiba's NAND production line, based on DRAMeXchange's investigation, only has a minor setback; however, due to the impact on material supply, traffic, and Japan's basic construction, Toshiba is still trying to evaluate the consequences that will likely to come soon. Toshiba's 12" plant in Iwate Prefecture produces logic IC and consumer IC primarily. Due to its close proximity from the epicenter, the production in Iwate Prefecture will be affected severely; the memory production plans in Kansai area are with minor damage. The Fab3 and Fab4 of the Flash memory plants by Toshiba and SanDisk have not yet been confirmed to have serious damage, because they are located about 800 miles away from the epicenter. Nevertheless, the production at Fab3 and Fab4 is rather precise and delicate; based on SanDisk's official statement, the production did stop temporarily but no employee was hurt. A more comprehensive damage report is expected to be released on Mar. 14.

Based on past experience, DRAMeXchange believes that manufactures will evaluate their fab equipment and make necessary repair. Although the over semiconductor production line was not severely damaged, the material supply and basic traffic reconstruction will impact more on the supply of semiconductor than production line damage. The overall supply is expected to be affected for the next two weeks due to traffic difficulties.

EnergyTrend (Solar, Battery):
In addition, EnergyTrend, a research subsidiary of TrendForce focusing on green energy industry, indicated that most solar cell manufacturers such as Sharp, Sanyo, and Kyocera are gathered in kanzai area of Japan. Therefore, the impact of quack was contained to minimal. According to Sino American Silicon Products Inc., production lines of its customers were unaffected. As for poly silicon, Tokuyama and M.Setek are the two Japanese companies producing the product. However, their global market share is not significantly large enough and the impact is still under investigation. Because M.Setek (partly invested by AUO) is close to the afflicted region which is near Sendai and Souma, staffs of the company were evacuated from plants and facilities were shut down due to electricity black out.

EnergyTrend believes that the impact on solar cells and modules is very limited and the domestic demand might increase. Supply of 12" wafer might be affected and the subsequent influence on 8" and 6" is still under observation. Though poly silicon production from the aforementioned two companies is just a small portion of global supply, the continued increase of price of poly silicon might be accelerated due to sentimental reasons.

Sony at the same time also evacuated staffs from its plants in north-eastern Japan. Because of electricity black out, production of Blu-ray discs, magnetic heads and batteries will impacted. Though the impact on supply is temporarily insignificant, Korean and Taiwanese battery makers might see increased orders. From the viewpoint of the battery industry as a whole, EnergyTrend believes that Korean and Taiwanese battery protection IC manufacturers might be benefited, because Seiko's plant shutdown will be the most influential impact on the overall supply. Mitsubishi's plastic materials account for a small portion of the market share, its absence can be taken care of by other manufacturers. Battery cell sector still suffers oversupply, the impact of Sony's plant shut down depends on its recovery schedule.

For the battery industry, the impact is widespread from upstream to downstream. As for upstream material suppliers, Mitsubishi Chemical and Seiko are both on the watch list. Mitsubishi Chemical's anode powder mainly focus on NB applications for Japanese market. Seiko's battery protection IC is used by many NB brands, especially and dominantly Appl e's new Ipad 2. Close observation is crucial in the aftermath of affected material supply. Sony's battery cell manufacture, supplying NB applications and power tools, was affected too. For the NB applications, the shutdown of battery supply is estimated to be 2 weeks with impact of 8M. However, because theoretically its battery pack needs to be assembled in China, there is still a chance that existing inventory may be sufficient. In other words, if Sony can restart production lines in 2 weeks with successful shipment, the impact can be kept minimal.

Based on EnrgyTrend's observation, it is still hard for Taiwanese battery cell and pack manufacturers to be benefited directly from the disaster. Though supply of protection components will definitely be affected, the main suppliers are not based in Taiwan. Only the ones that have readily sufficient inventory will have a chance to gain contract for 2011 Q2. Simplo, Dynapack, and Celxpert are on the watch list. In terms of Japanese battery supply chain, what is worth noting are industrial recovery from damages cause by the quake and tsunami and recovery of transportation system.

Witsview (LCD):
As for the situation of LCD panel supply, Witsview, a research division of TrendForce, indicates that most major LCD panel manufacturers are at Kansai region, Japan. Therefore, not much damage has been done to LCD panel manufacturers. In regard of relevant product chains of Japanese panel industry such as LCD panel, glass substrate, color filter and polarizer, their manufacturers are located in western Japan, including Osaka, Kobe, Kyushu, and Hiroshima areas.

Due to the fact that those areas are far from epicenter, no effects caused by the earthquake has been reported so far. Sharp's TFT-LCD production line is working smoothly as well.

However, the effects caused by the earthquake in Kanto region may inevitably shut down PLD(origin IPS)six-generation fab , which is considered a closed supply chain on account of the fact it mostly supplies Panasonic with LCD TV panels. This IPS-a (a production line for Panasonic's TFT-LCD), is a six-generation fab in Mobara. So far, every staff member is safe and the cell phone reception is available; only some factories have been affected. As for the effects caused by the earthquake, they are still yet to be estimated.

In addition, glass substrate manufacturer AGC owns an old furnace in Yokohama, Kanagawa, which the staff member responds that it needs to wait until March 14th to have an appraisal report regarding the state. The major concern among industry is about Corning Japan located in Kakegawa, Shizuoka, whose capacity accounts for 70% of total capacity of Corning Japan. But on March 11th, Corning issued an statement saying there is no damage regarding staff members and equipment and it should take about half a day to a day on examination before the production line restarts. As for color filter manufacturers Toppan and DNP, which own 3.5-generation ~ 4th-generation in Niigata and Saitama, the states are still indefinite. But due to the fact that they are old generation, it is expected that they will not affect industry supply chain much.

Witsview believes that as serious as the outcome caused by earthquake is, in general, it did not harm the core of TFT industry. Therefore, the damage it brings to the panel market is limited.

LEDinside (LED):
Ledinside points out due to the fact that, unlike semiconductor manufacturing process, the manufacturing process in LED industry is mostly regarding chemical reactions and is shockproof, the effects caused by the earthquake are limited. The two leading LED manufacturers in Japan - Nichia and Toyoda Gosei are far from the disaster area in northeast Japan. According to LEDinside's inquiry at these two manufacturers, not much damage has been done. SDK's LED production line is located in Chiba, where whether the power blackouts and power cuts affect the production line is still waited to be confirmed.

According to TrendForce, Japan's economy is strongly impacted by the earthquake, and is now in need of reconstruction. Comparing to the 13 trillion Yen which was used to reconstruct the earthquake that hit Osaka, the amount for reconstruction this time is estimated to be more because of the countries' demand for steel, cement, glass and automation. In the IT field, supply chain has been impacted and the overall market view is negative. For the newly launched iPad2, sales in Japan will decrease.

Kansai Electric power will support the short-term power shortage in East of the Kanto. Japan's industrial output is bound to be affected and the impact of relevant supply chain shipments is worth observing.

To read the source visit: http://press.trendforce.com/en/node/1136


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