Japan: Full chip production still a long way off

Earthquakes ranging from 4 to 7 on the Richter scale will make it impossible to fully restart these fabs until the earthquakes stop happening with such frequency, IHS iSuppli research indicates. Every time a quake tops 5, the equipment automatically shuts down. Many electronic original equipment manufacturers (OEMs) worldwide could be engaging in panic buying of semiconductors and electronic components, spurred by fears of supply disruptions from Japan. Electronic distributors are reporting a surge in orders from OEM customers, trying to ensure they have sufficient inventory on hand to ride out any interruption in supply. While the semiconductor supply disruptions are bad, they could have been worse; the recent buildup in global semiconductor inventory may serve to mitigate the impact of reduced supply from Japan. IHS iSuppli in February warned global semiconductor inventory levels had risen to alarmingly high levels, surging to a two–and-a-half year high in the fourth quarter of 2010. Although not completely compensating for supply disruptions from Japan, these excessive inventories may provide some cushion for global semiconductor supply. Japan is facing rolling power outages, with frequent electricity supply interruptions in some areas. This represents a particular hazard in the production of raw materials for semiconductor manufacturing. Japan is the world’s leading producer of the main raw material used in semiconductor manufacturing: silicon. The country is also a major provider of chemicals for semiconductor production. Some of these chemicals are hazardous, and power interruptions could lead to dangerous events, such as explosions or the release of poisonous material. In these cases, semiconductor materials facilities facing power interruptions are likely to suspend some operations until a stable power supply can be restored. While Japan is a major producer of electronic systems, it is a much smaller consumer of such goods, accounting for only about 5.2% of global PC consumption and 5% of worldwide cell phone consumption in 2010, IHS iSuppli research indicates.