Japan Disaster Puts Historic Hurt On Chip Industry

No other disaster has hurt the worldwide computer chip industry more than last month's earthquake and tsunami in Japan, according to analysts. Japan is struggling to get back on its feet and back to business after the country was devastated by a series of disasters that hit the country starting on March 11.

The disaster, including the earthquakes, a tsunami and an ongoing crisis they caused at the country's nuclear power plants, has not only damaged semiconductor manufacturing facilities, but also affected Japan's electrical supply and transportation infrastructure. Thus, many companies are having trouble getting important supplies and shipping out the products they have manufactured. And it could be four to six months before semiconductor production fully resumes in Japan, said Dale Ford, a senior vice president with IHS iSuppli, a research firm. And that will have a major impact on worldwide supply since Japan is a major cog in the global semiconductor manufacturing process. Actually, Ford noted that a few of Japan's production facilities are so badly damaged that they may never come back online again.

"This is the biggest impact on the electronics supply chain in the history of the semiconductor industry," said Ford during a Webinar that iSuppli hosted Friday. "We've had other disasters but this is the most significant supply chain impact that the industry has ever experienced." iSuppli reported last month that the disaster in Japan is currently putting a pinch on 25% of the worldwide production of silicon wafers used to make computer chips. But the trouble is going further than that, according to Ford. Silicon wafer production has been affected, along with the production of LCD screens, silicon and chemicals, like hydrogen peroxide, used in the manufacturing of computer chips.

Len Jelinek, a director and chief analyst with iSuppli, said that 75% of the global supply of hydrogen peroxide has been affected by the disaster in Japan. The chemical is used to build semiconductor wafers. "This is a critical situation in that numerous manufacturing fabs that use this chemical are unable to get adequate supplies, which results in slow downs," said Jelinek. "This is rapidly turning into a very concerning issue." Ford noted that three Japanese facilities that make silicon have not yet been able to return to operation since the earthquake hit on March 11. "Corresponding wafer manufacturers are scrambling right now to qualify alternative sources," added Ford. "Most manufacturers have a three-to-four-week supply of wafers on site. We can probably count on three to four weeks where we'll have some impact on production until companies get alternative sources of silicon." Ford also pointed out that the production of Apple's highly popular iPad tablets could be affected by the disaster since production of four components, like the WiFi module and touch-screen controller, needed to build them have been hurt. "In the production of equipment, you can't have 94% of the parts," said Ford. "You need 100% of the parts to build any device." However, tablets and computers won't be the hardest hit. No, that distinction goes to the automotive industry, iSuppli reported.

Renesas Technology, which is a key supplier of computer chips for automobiles, has been hit hard, not only by the earthquake and tsunami, but also by the rolling electrical brown-outs and black-outs. The company has partially resumed operations at five of its chip plants. And while several more are expected to go back online, it's likely to be only in a limited capacity until the blackouts are over. And that could take months.

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