By David Lammers

While the consequences of the earthquake which struck northern Japan Friday afternoon (local time) are still being assessed, analysts said the disaster and the subsequent nuclear power crisis are bound to have a major impact on the worldwide semiconductor, display, and consumer electronics industries. Most of Japan’s larger semiconductor fabs are in the western part of the country, relatively distant from the affected area. The display industry may suffer due to its dependence on Japan for key components used in LCD displays, IHS iSuppli said, noting that resumption of production and key materials may not fully resume until aftershocks subside and power shortages are resolved.

Semico Research noted that while only a few semiconductor manufacturing fabs sustained substantial damage, notably the Texas Instruments fab in Miho, it is urgently necessary to bury the Fukushima facility in concrete and other materials in order to resolve the nation’s nuclear crisis.

Gartner analyst Dean Freeman said not much information has come from Japan thus far.

“Anything Tokyo and north was hit pretty hard so my guess is they are shut down for a few days, or as long as a month, working on cleanup and checking things out.  This will likely tighten up the supply chain depending upon the devices and where the supply chain goes. It is likely the automotive and  gaming sectors will be impacted,” Freeman said, adding that Japan also has a significant microcontroller business.

“The western side of Japan will be OK,” Freeman said, but “Nagoya to Tokyo will have to undergo a significant cleanup depending upon how hard they were hit.  From Tokyo north, it will take at least a month unless they are very lucky, or work very fast.”

Freeman said wafer shortages and a disruption in packaging materials are the two immediate concerns. “Most semiconductor manufactures built up wafer inventories in 2010, but exactly how big they are we don’t know. I think they would have 4-6 weeks in house, or more,” buttressed by the inventories at the wafer manufacturers themselves.

The SEH factory in japan accounts for ~17% of the 300mm capacity worldwide. “The question is: Can SEH shift the capacity, or can others absorb the capacity? I don’t think wafers is the main concern for the supply change. I would be more worried about the polymers used for packaging,” Freeman said.

Jim Handy, principal analyst at semiconductor market research firm Objective Analysis (Los Gatos, Calif.), said “over 40% of the world’s NAND flash and roughly 15% of the world’s DRAM are manufactured in Japan.” He noted that Japan also is a significant source of consumer electronics devices.

Most of Toshiba and San Disk’s NAND production is in the Nagoya region, between Tokyo and Osaka. From Sendai to Nagoya is roughly 300 miles (480 kilometers), a distance that will lessen the impact of the quake on Japan’s largest NAND production complex: Toshiba’s Yokkaichi campus near Nagoya. Also, Elpida’s main DRAM fab is even more distant, located in Hiroshima, in far-distant southern Japan. While production at the Yokkaichi Works was halted briefly, Handy said the fab is now back in operation.

“It doesn’t take a large production decrease to cause prices to increase dramatically,” Handy said, predicting “phenomenal price swings and large near-term shortages as a result of this earthquake.” Demand will be impacted since many electronics manufacturers are in Japan, and their consumption of semiconductors will be halted until earthquake damage is repaired, he said.

Handy noted that the Japan quake, which measured 8.9 on the Richter scale, was 10 times more powerful than the quake which struck Taiwan in 1999, temporarily halting production in the Hsinchu Science Park outside of Taipei.

Klaus Rinnen, in charge of Gartner’s manufacturing technology research, said “it is important to remember that Japan is the largest supplier of many critical materials and equipment types.” Those include:

1.    Silicon, with a greater than 60% share held by SEH, Sumco, and others.

2.       Photoresists, where Japan-based suppliers account for about a  70% share divided among  JSR, TOK, Fuji Film, Sumitomo, Shin-Etsu, and others.

3.       Photomask blanks, with Hoya holding a dominant share.

4.       Chemical amplified resist precursors, with nearly all production coming from Japan-based suppliers, including JSR.

5.       In lithography track, TEL is the dominant supplier, followed by DNS-Sokudo.

6.       In photomask writers, NuFlare and JEOL control most of the market.

Japan’s production of components for LCD panels is another area of concern. An early assessment by analysts at IHS-iSuppli noted that Japanese suppliers account for a very high share of components used in LCD panels and LCD-based products, including glass, color filters, polarizers, cold cathode fluorescent lamps (CCFLs) and light-emitting diodes (LEDs).

Japan in 2010 accounted for 6.2 percent of the world’s $86.3 billion in global production of large-sized LCD panels in 2010, i.e., panels 10-inches and larger in the diagonal dimension. Japan also accounts for 14 percent of LCD TV panel production. The country is home to many higher-generation fabs, including the world’s only 10th Generation LCD fab operated by Sharp Corp. in western Japan, far distant from the quake’s epicenter.

The IHS iSuppli Japanese display research team said the Sharp fab has not been directly impacted by the quake, given the remote location of the fab. Only one large LCD fab may be in the zone of peripheral impact by the quake.

In semiconductors, Japan accounted for more than 20 percent of global semiconductor production in 2010.  “The major impact on Japan’s semiconductor production is not likely to be direct damage to production facilities, but disruption to the supply chain. Suppliers are likely to encounter difficulties in getting raw materials supplied and distributed and shipping products out. This is likely to cause some disruption in semiconductor supplies from Japan during the next two weeks,” the IHS iSuppli assessment said.

The two major DRAM fabs in Japan, operated by U.S. based-Micron and Japan’s Elpida, have not been directly affected, according to preliminary indications from IHS iSuppli contacts.

IHS iSuppli manufacturing analyst Len Jelinek said “it appears that the major issues will be more related to a disruption of the supply chain due to infrastructure problems. Initial communications we have had with Japanese companies seem to indicate minimal factory damage however most of the plants are currently shut down with no definitive time schedule for resumption of operations.”

The longer term issue may be getting materials to the plants as well as the ability of companies to ship completed product out of the country, Jelinek said, adding that “it is going to take a few days to assess the damage to the infrastructure of the country.”

“Within the semiconductor industry there has been a movement of late to minimize the number of suppliers on BOM’s. With the magnitude of Japanese suppliers that have been affected the total semiconductor industry will definitely see an impact within the next couple of weeks. The key issue will be how much inventory is available in the supply chain and how much of that inventory will be consumed to meet demand schedules,” he said.

In the short-term the good news is the current inventory situation will work to the advantage of the industry to minimize the overall impact, he added.

Additionally, he noted that this is the “slow time of the year so the industry is not being affected by seasonal demands.”

Joanne Itow, foundry analyst at Semico Research, noted that Japan consumed 19% of total worldwide discretes and 14% of total IC sales, according to SIA/WSTS data.

In addition, Japan plays a key role in the supply of discrete devices including such products as power MOSFETs, used in all electronic devices.  “A small disruption in the supply chain can spur chip pricing pressures even for a limited time frame,” she said.

The Semico Fab data base lists over 100 fabs in Japan.  Freescale Semiconductor has a fab in Sendai, the hardest hit major city, which produces microcontrollers and sensors. Freescale has said it intends   to close the Sendai fab by the end of this year.

Most of the other fabs are located in the southern regions of Japan.  Toshiba operates flash fabs in Yokkaichi in Mie Prefecture, more than 200 miles from Tokyo and 300 miles from Sendai, the area hardest hit by the quake and tsunami.

“There are a few fabs located near or in the Tokyo area.  Some of them are R&D facilities.  Although fabs located close to Tokyo may not suffer from equipment or infrastructure damage, there could be problems due to supply of reliable and consistent electrical power,” Itow said.

Many fabs halted production as a result of the disaster, and the 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. 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, she said.

There could be a short term positive impact for GlobalFoundries as companies 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,” she noted.

Tags: DRAM, earthquake, Japan, NAND, prices, semiconductors

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