Aftershocks in Semis

By Carlos Guillen

Given the current disaster that has occurred in the world's third largest economy, it will be inevitable to filter out the economic reverberations that are emanating from Japan. In particular, the semiconductor industry is likely to experience a couple of quarters of supply and price aftershocks as a result of the damages and shutdowns of major semiconductor manufacturing facilities.

On the one hand, Japan's high tech structures have been able to stand up to the earth's gyrations for the most part. Although companies Hitachi (HIT), Sony (SNE) and NEC (NELTY.PK) have all reported damages to their various production facilities, the bulk of the chip manufactures have remained unscathed. On the other hand, energy shortages, transportation slowdowns, and human capital difficulties will persist for some time, serving to curtail chip supplies and general electronic shipments to the rest of the world.

Some of the components that will be affected by this disaster will be memory, logic, LCD panels, and microcontrollers. In particular, NAND Flash prices will increase. Toshiba (TOSBF.PK) is the second largest manufacturer of NAND Flash memory, and more than a third of the world's NAND Flash comes from Japan, which is used in everything from smart-phones to tablets to computers. Just this past Monday, spot market prices for mainstream MLC NAND flash soared by up to 20 percent, and on Tuesday it continue increasing by over 5 percent.

Even if shipments of semiconductor parts affected by the quake were disrupted for only a few weeks, shortages and their price impact would likely to linger until the third quarter. On a positive note, this will serve to erase any bubbles that were rumored to be forming in the memory market, serving to attenuate the price increase in memory. Moreover, shortages are not likely to be observed until the beginning of April.

Clearly the players negatively affected by this situation will be Toshiba and Hinix (Japan operations), on the other hand Micron (MU), Samsung (SSNLF.PK), and even Intel (INTC) should benefit from disruption in memory. Another prominent company negatively affected will be Canon Inc (CAJ) as it said that it may not be able to resume production at three factories making office equipment and lenses used in audio-visual players this week. Sony Corp also said its eight factories making equipment ranging from optical devices, IC cards, blu ray discs, chip equipment and lithium batteries remained closed, with no guarantees on resuming date.

Even some American semiconductor players are being affected by the earthquake. Texas Instruments (TXN) said late Monday that it had suffered substantial damage to its production plant in Miho, Japan, and slight damage to its Aizu-wakamatsu plant. Both facilities are located north of Tokyo in the areas most affected by the disaster. The extent of this impact on TI's overall business will not be catastrophic, but still significant. The Miho plant was responsible for about 10 percent of the company's output last year, and it will not be fully operational until mid July. However, TI said that 60 percent of the production from this plant will be transferred to other sites. Nonetheless, the company said it will take a sales hit during this quarter as a result of this disruption, but it did not give an exact figure.