Assessing the damage
A week after the earthquake of the coast of Japan, the full extent of the disaster is still unfolding. While humanitarian concern is rightly focused on the areas hit by the ensuing tsunami and the still precarious situation at the Fukushima nuclear plant, there's growing speculation about the knock-on effects of the crisis on the global tech industry.
As we covered earlier in the week, only the production of NAND flash seems to have been directly affected by the earthquake. But there is clearly massive disruption to Japan's economy and infrastructure as it attempts to deal with the crisis. And while much of the manufacturing of tech products and components happens in China and Taiwan, Japan is still a key player.
No more so than in the capital equipment inside semiconductor fabs. As we demonstrated in our visit to the GlobalFoundries fab in Dresden a while back, there is a lot of very expensive, very clever equipment inside a fab, and it's all made by specialist companies, most of whom have a significant presence in Japan.
The biggest player in the semiconductor equipment market is Applied Materials, according to VLSI Research. Applied posted an update on the situation on its blog earlier this week, in which it revealed it had evacuated its primary parts centre near Tokyo. It added that a special team has been set up to minimize the impact on its global supply chain, but gave no indication of how great that impact still may be.
The second biggest player in this market is Tokyo Electron Limited (TEL). In a press release it detailed the facilities it has in the affected area, and stressed none of them suffered significant damage. Operations at the three facilities will be suspended for between one and four weeks depending on infrastructure and supplier status.
The most prominent companies likely to be affected by any disruption to the capital equipment supply chain are the big manufacturers: Intel, TSMC and GlobalFoundries.
We received this statement from Intel: "Preliminary assessments are relatively positive from our direct suppliers, whom we currently believe came through this event in reasonable shape. Challenges in power and transportation infrastructure are evolving and we continue to monitor and interpret the implications to our suppliers."
TSMC initially issued a short statement saying it had experienced no significant impact from the quake, but was then moved by speculation in the Chinese language press to make a more comprehensive clarification.
"The impact of the recent earthquake and tsunami in Japan on TSMC's operations is under control. While we do not exclude the possibility that this earthquake and its follow-on effects may impact the global electronics supply chain, TSMC believes that the impact will be brief, as we believe 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."
We had been unable to contact a GlobalFoundries spokesperson at time of writing, but with a brand new fab being built and equipped in upstate New York, it is potentially the most exposed.
Elsewhere the analysts have been busy gauging the broader business ramifications. IHS Global Insight published a study two days ago that said it expects Japan to bounce back within six months and for the impact to the global supply chain to be tolerable. Meanwhile iSuppli and All Things D couldn't resist focusing on the supply chain for Apple's iPad 2, without concluding much one way or the other.
In summary it looks like nearly all tech companies that have released statements suffered minimal direct harm from the earthquake in Japan, but many expect disruption to their operations in the short term. This will have global supply chain implications but, at time of writing, they seem to be manageable and no major component shortage is currently anticipated.
UPDATE - 12:45 18 March 2011: As we said in the piece, this is a constantly evolving situation and soon after publishing we saw this story from Reuters, which implies there may be mid-term disruption to LCD and notebook battery supplies.
UPDATE 2 - 18:00, 18 March 2011: We've received a statement from GlobalFoundries on the matter.
"At this time we see no significant near-term impact on our operations. As we receive more information this week we'll be able to better assess any long term effects on our business. We have a diverse global supply chain that enables us to mitigate risk in many areas. That said, Japan is an important region for GLOBALFOUNDRIES and we continue to monitor the situation closely."
We also asked the spokesman - communications VP Jon Carvill - specifically about the expansion of the Dresden fab and the new one they're building in the US and he confirmed both remain on schedule.
