Embedded | June 10, 2011

Embedded processor market update: Japan recovers

Although in the immediate aftermath of the March 2011 disaster, the broad information technology industry was badly shaken and broadly concerned, the actual Q2 impact on the embedded processor community has been rather minimal.
In fact, according to a recent survey, the outlook of most embedded processor manufacturers is one of cautious optimism as the after effects of the disaster on supply chain, manufacturing, and customer shipments is expected to be minimal.

Central Processing Units (CPUs) & Graphics Processing Units (GPUs)

For instance, within the CPU market, suppliers have said they are not facing major problems in Q2. AMD mentioned low-impact, recoverable delays in substrate deliveries, but no major operational issues otherwise at their facilities or at their Foundry partners. Most of the major suppliers of CPUs seem to have avoided the worst of the crisis. Intel mentioned no material impact from the crisis. Likewise, the GPU suppliers do not seem to have serious exposure to the fallout. The effect on average sale prices of embedded CPUs and GPUs will also likely be minimal in Q2.

Field Programmable Gate Arrays (FPGAs)

While a few companies were noticeably and negatively impacted, the majority report that, operationally, current plans were not derailed to any significant degree. For example, FPGA supplier Lattice Semiconductor reported no real material problems with operations. While one fabrication facility experienced temporarily slowed production, three Fujitsu facilities that Lattice utilizes were largely unaffected. This single location's reduced output did not result in any material customer shipment misses as manufacturing was quickly transferred to the unaffected operational sites.

Overall, Lattice believes that the impact in the short term is minimal, that the effect in the mid-term can be countered by alternative suppliers, and in the long term the Japanese facilities will meet the manufacturing demands as scheduled prior to the earthquake and tsunami. Researchers also anticipate no dramatic upward spike in the average sales price of Lattice products.

Microcontroller Unit (MCU)

The microcontroller unit (MCU) landscape appears to be considerably less certain. Some companies, such as Renesas, experienced significant disruptions to their manufacturing lines. The Renesas Naka fabrication facility in Hitachinaka, Ibaragi continues to remain offline due to manufacturing equipment damage. Just under 20% of Renesas MCUs were produced at the Naka facility prior to the earthquake. Renesas states that it can cover 70% of existing orders with the Naka plant through the end of May with existing inventory and in-process work at the plant.

Renesas plans to meet the remaining 30% of orders by shifting production to other facilities. Despite this, Renesas sustained a loss in its most recent fiscal year (ended March 31) of nearly USD 1.4 billion, of which approximately $600 million was reportedly related directly to the earthquake and tsunami, and of which approximately 85% is accounted for by the Naka facility shut-down.

However, Renesas claims it has managed to move up the restoration of manufacturing at the Naka plant from mid-June to early June for its 200-mm line and from July to early June for its 300-mm line. These adjustments are made possible by extensive support from outside companies. Nearly 2'000 additional support workers have been sent from outside companies to help restore normal manufacturing levels as quickly as possible. Renesas expects to achieve its pre-earthquake production rates by the end of July.

Overall, the Renesas predicament should allow its leading competitors to capture incrementally more market share, at least for 2011. Researchers expect Renesas MCU prices could increase slightly in the short term in light of supply and production constraints, partially offset by customers placing orders with competing suppliers.

Another MCU company, Freescale, reported extensive damage at their Sendai, Japan factory, which produced microcontrollers and other products. Because of wide-spread destruction to the facility and infrastructure in the region around the plant, Freescale has elected not to reopen the plant, but instead accelerate the transfer of manufacturing to other facilities.

In December of this year, Freescale had previously acknowledged its intention to close this facility. Production ramps will likely occur at facilities in Texas and in Arizona and at selected foundry partners to meet existing and future orders. The effect on the average sales price of Freescale microcontrollers is expected to be minimal.

In summary, while the human tragedy associated with the Japan disaster will be felt for generations, the Q2 economic impact for the global embedded processor community was largely minimized by disaster recovery programs (e.g., shifting production elsewhere, locating alternative qualified suppliers, etc.) that were already established and implemented immediately following the catastrophe.

Beyond Q2, analysts see Japan's larger economy gradually rebuilding, as the government passed a USD 50 billion supplementary budget for cleaning up tons of debris and performing other vital recovery tasks. The embedded processor community, while not dramatically weakened, will likely recover fully, as well.

Source: VDC Research Group
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