Friday, December 7, 2012

Another Japan quake: Crisis averted, but impact nonetheless

Nearly two years ago a catastrophe in Japan that literally changed the physical landscape, impacted millions of lives, and rewrote strategies and rules from energy production to supply chains.

Fast-forward to today: a 7.3-magnitude earthquake struck Japan, offshore near Sendai right near where the 2011 disaster began (and possibly even an aftershock), but apparently causing no major damage or serious injuries. It does, though, bring back vivid and painful memories and ever-present worries about infrastructure -- and, specific to this industry, the stability of semiconductor manufacturing operations.

It doesn't take a megaquake such as the 8.9-magnitude Tohoku one to seriously damage a local semiconductor ecosystem. A 7.6-magnitude quake in 1999, for example, shut down semiconductor fabs in Taiwan, and Silicon Valley seized up in 1989's Loma Prieta quake (6.9), points out Jim Handy, analyst with Objective Analysis. Japan, which is intimately familiar with earthquakes and their repercussions, has seen its own semi industry setbacks from far less powerful quakes in the past few years: 5.9-magnitude in Sept. 2008, 6.0 and 6.8 in July 2007, and 6.9 in March 2007. As a result, Japan's infrastructure is better-equipped than most regions to handle them.

That said, it doesn't take much to knock a plant offline as a precaution to minimize and assess damage to facilities and equipment (and workers), and that impacts work-in-progress. Japan is a major source of chips used in consumer electronics devices, particularly memory; it's home to a third of NAND flash production and about 15% of DRAM, with Elpida in particular a significant supplier of mobile SDRAMs in smartphones and PCs, Handy notes. Luckily most of the production and inventory for the year-end holiday push has already occurred, which should minimize much of that supply-chain impact, so "significant shortages are unlikely," though demand for the Lunar New Year might be affected, he says.

But it doesn't take much of a production decrease -- or even fears of one -- to have a dramatic impact on pricing trends, either. Expect "short-term price swings as a result of this earthquake," Handy predicts.

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