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Supply chain from Japan interrupted significantly
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Monday, April 18, 2011
Last fall, industry analysts predicted there would be an oversupply of manufacturing capacity due to a market correction following the strong revenue posted in 2010, but following the earthquake, tsunami, and now nuclear crisis in Japan, the landscape looks different.
Semico Research Corp is sticking with its forecast that by the end of this year, capacity utilization will drop below 85%. While the company has not actually changed its forecast yet, based on the events that have happened in Japan, its analysts are watching closely.
"There are a couple of things that could happen with the impact of the earthquake in Japan. We think that demand for electronics is not going to change. Everyone is still going to want their cell phones and tablets," noted Joanne Itow, managing director of manufacturing at Semico. At the same time, she said a possible impact would be in areas where Japan was playing pretty heavily, which is the supply chain in the automotive industry, and possibly in the gaming space. Still, automotive is only about 10% of total semiconductor revenue, with Japanese supplies accounting for 30% of that market, which cuts down on the automotive impact.
"If there is a prolonged interruption in the supply chain, what we think is going to happen is that there will be pent-up demand. People aren't going to get their goods but that doesn't mean they're not going to want them once they can get their hands on them. It makes the planning for our industry very difficult. What I think is going to happen is that companies like TSMC, Intel, and Samsung are going to move forward with their capex spends because they don't want to take the risk of missing a beat," Itow added.
Leading foundries TSMC and GlobalFoundries both confirmed that they would continue with their 2011 capex plans.
TSMC noted in an e-mail that the forecast demand customers in 2011 outpaces the supply under its current capacity trend, and expects to continue to fully utilize its capacity this year. To support this growth, TSMC said it plans to spend approximately $7.8 billion for capital expenditures this year, with 81% of the total capital expenditures for 65-, 40-, and 28-nm technologies.
Likewise, GlobalFoundries -- which counts AMD, Qualcomm, Infineon Wireless, and STMicroelectronics as some of its customers -- is moving ahead with its capex plan. "When we look at capacity from our perspective, we are spending in capex roughly $5.4 billion this year, which is about 2x of what we spent last year. The vast majority of that capital expenditure is going into the capacity build-out at our Fab 1 campus in Dresden, Germany, and our Fab 8 campus here in upstate New York, where we are putting our first tools in starting the middle of this year," Jon Carvill, VP of communications for GlobalFoundries explained.
"The capacity we are adding is not speculative capacity: We are adding it based on real customer demand and opportunities with current relationships to expand and then some new relationships. Certainly, last year was an anomaly as far as market growth went; the foundry industry grew very aggressively and we had a very good year as far as growth at about 45% revenue growth from 2009 and we're still expecting growth this year. I think it will be a little more competitive this year but nonetheless we're still seeing that growth. We're still seeing new opportunities particularly in areas like wireless applications, smartphones as we are still seeing strong growth in those segments. The PC market has remained pretty strong, although not on the same trajectory," he added.
Dale Ford senior VP of market intelligence at IHS iSuppli, said during a recent webcast on the topic that beginning with a basic view of the supply chain, it is important to note the breadth of the impact of this disaster. "We are aware of damage to facilities - probably the most prominent in the press has been damage to automotive production facilities and what's taking place with production of various types of electronic equipment."
However, moving up the electronics supply chain, there is a range of components from semiconductors to displays, batteries, and other elements that are also impacted by this crisis and creating severe challenges in the supply chain for those kinds of sourced parts for their ongoing production needs, not only in Japan but outside of Japan, as well, Ford said. Then, stepping one more step back up the supply chain to the materials-the supply of raw wafers, the supply of glass for displays, and resin. "In fact, as you go up the supply chain, the scope of the impact grows in terms of what we're dealing with here. It is amplified and becomes more significant, impacting a wider array of players in the electronics supply chain."
Japanese headquartered companies that have the dominant share of their production in Japan itself represent nearly 21% of worldwide semiconductor supply, according to Ford. Add to that a number of multi-national companies with operations in Japan - Texas Instruments, Freescale, ON Semiconductor - and that figure of how Japan impacts worldwide supply probably grows into the 22 to 23% range.
Even though Japan accounts for just more than 14% of overall global electronics equipment production, Japanese semiconductor suppliers and companies have a major presence throughout the Asia Pacific region and quite often many of the components of that production are sourced out of Japan itself so their influence and impact is beyond what is believed, Ford continued.
Further, "Japan is a key supplier of silicon wafers - over 60% overall. They are a key supplier of TFT-LCD panels and of battery technology, and other materials and chemicals." Ford asserted that he believes the earthquake and tsunami in Japan is the biggest impact on the supply chain in the history of the semiconductor industry. None of the previous natural disasters have been as broad in the impact on the supply chain, impacting as many suppliers as this disaster in Japan has had," Ford asserted.
From the foundry perspective, GlobalFoundries' Carvill said the company's location in Japan is largely a sales and customer engineering center. After making sure its employees were safe after the earthquake, the company did an assessment of short- and long-term impacts. "For us, there was very little short-term impact/immediate impact, outside a two day delay of a tool leaving Narita. But we didn't see any near-term impact to our business so obviously when you look at the long-term impact we're still in the process of fully understanding that because a lot of factories in Japan are getting back online and into production. We're not seeing any impact on the equipment side so far."
On the silicon side, GlobalFoundries feels "pretty good" about its current situation. "We had sufficient inventories to get us through the near term and we had multiple suppliers qualified because we do have a pretty diverse supply chain also between bulk and SOI [SOI wafers largely come out of Soitec]," Carvill noted.
Echoing Ford's comments, Carvill added, "I think it was a wake-up call for a lot of people because there was perception in the market that maybe Japan's role had somehow declined in this industry and then when this happened a lot of people took stock and said, ‘Wow.' They really touch a number of areas of this business from the design aspect, the components, materials, really, the whole value chain."
Meanwhile, TSMC said the impact of the recent earthquake and tsunami in Japan on its operations is under control. TSMC believes the impact will be brief, as the company believes that global demand for electronics end-products remains strong. Should the demand be temporarily suppressed due to an unstable supply chain, the market will quickly meet this pent-up demand once the supply chain returns to normal, TSMC told EDN via e-mail.
Looking at the analysis overall, Semico's Itow said the market research company believes there will be an interruption for a while in Q2 where orders might be down for a while, "but it's all going to come back with a fury," she said. "Everyone is going to want their parts right away so then everyone is going to be scurrying and the fabs will be churning away."
Another scenario could be that things could just be moderate for a while. If so and the foundries continue to add to capacity, then there could be an overcapacity situation. If that does occur, "I don't think it's going to be to such an extent that it's going to cause a lot of imbalance. But we were anticipating a slowdown in the second half of this year moving into the first half of 2012 and that would have caused some problems with capacity at the foundries because I thought there would be some overcapacity. But with this cautiousness with the quake and everyone being very concerned about it, I think they are just watching a little bit more closely so I don't think companies are going to overdo it," she concluded.
By: DocMemory
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