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UPDATE 3: New Earthquake as Japan Situation Gaining in Complexity and Severity

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BREAKING NEWS

At 04.01 GMT, a new earthquake hit eastern Japan.  At the time of this Commentary posting, BBC reported that " The Japan Meteorological Agency said it was a 6.0 magnitude quake in the Pacific just off Chiba prefecture."  There is no additional information at this time due to the immediacy of this event, other than that no immediate tsunami warnings have been issued, although sea level changes are being monitored.  This is likely another serious aftershock event from Friday's 8.9, massive earthquake.

POWER AND NATURAL DISASTER FOCUS

The news from Japan unfortunately has not improved.  Since our last update, we have been watching the most pressing question still, the nuclear reactors.  Of particular concern is the one that has now suffered at least four explosions and a credible risk of at least a partial melt-down, as reported here on  3/16 at 02.22 GMT by BBC World: "Japanese Cabinet Secretary Yukio Edano says the authorities are still looking for the cause of white smoke billowing from reactor 3 at Fukushima Daiichi nuclear power plant. He says the radiation reading at the plant is fluctuating by the hour."

As though the natural destruction from the most severe earthquake and tsunami in Japan's history wasn't enough, the explosions at Fukushima continue and the radioactive concern has now widened the evacuation and danger zones.  The weather has also turned very cold and wintery, hampering assistance and evaluation efforts.  The waiting is difficult for everyone, even beyond Japan.  Unfortunately, we are all waiting for news of the status of the reactors at Fukushima as well as the ability to maintain safe conditions at the other nuclear power plants in the region.  The human and environmental tolls are significant and mounting.

SUPPLY CHAIN FOCUS

On the semiconductor front, the initial power fluctuations during the earthquake and tsunami hit were severe in and of themselves. With power fluctuations, rolling black outs, and hourly uncertainties of worsening nuclear reactor situations, the ability to forecast is very challenging.  Shortages are a certitude, the questions center on the severity, longevity and the precise components impacted.  Beyond supply at the manufacturing level, there are transportation and logistical issues that will hamper the movement of goods, only compounding the severity of what we are watching unfold.

We do know that regardless of the ability and timing of manufacturing lines of any type and at any given company to resume production, there are serious questions around the ability of employees to work because of human and living situations plus concerns for their families across the country.  It will take a few more days to have a better picture and we are vigilantly monitoring this complex, grave and still evolving situation.

Component and supply chain effects that we can confirm from within our networks and based on our own data for a variety of components underscore the breadth and depth of interruptions across semiconductor market sectors and component types.

iSuppli summarized well the situation we are seeing in their brief on 3/14 and re-presented here (emphasis original):

"Components impacted will include NAND flash memory, dynamic random access memory (DRAM), microcontrollers, standard logic, liquid-crystal display (LCD) panels, and LCD parts and materials.

Japan also is the world’s largest supplier of silicon used to make semiconductor chips—at about 60 percent of the global total. If this supply is disrupted due to the logistical and infrastructure challenges Japan is facing this will have an impact not only on NAND flash memory, DRAM, microcontrollers, standard logic, LCD panels and LCD parts, it will also affect other families of products such as discretes, i.e. MOSFETs, bipolar transistors and small signal transistors."

Consolidating a variety of sources, additional supply chain concerns include MLCC, aluminum capacitors and upstream materials' supply because of the concentration of manufacturers in Japan to the global semi industry.  While spot prices for many components have been rising (especially memory), these initial rises are based more on the psychological effects and expectations of the upcoming weeks and months.  It may take a couple of weeks until supply levels face replenishing issues, but this common pricing change is real and foreshadowing of the most likely situation we will face through 2Q11, and possibly into 3Q11 (see this ElectronicsWeekly report).  A concrete forecast requires actual data from the supply chain companies in Japan, not all of whom have reported at this time due in part to the power availability and on-going nuclear situation that are hampering reporting capabilities.

NOTE, at this time we are also having to work with many estimated data points.  Final assessments are still forthcoming and delayed because of the continued nuclear reactor situation, ongoing aftershocks that are reaching levels up to 6.0, and uncertainty as to the 'final' situation in Japan.  We stand by our early cautions for automotive semi, upstream material suppliers to many sectors (especially handset components), memory, batteries (especially for notebooks and hybrid auto), LCD panels, displays (for handhelds due to Hitatchi fab), ICs (logic and consumer due to damage at the Toshiba Iwate plant), and Sony Blu-Ray components, to name some of the most likely (see this EETimes Asia overview and DigiTimes Insight 3/15/11, for comprehensive special reports on the Japanese supply chain situation).

Bloomberg best summarized the situation for the entire supply chain in this quote pertaining to the automotive industry:

“The reality is the companies don’t know the full extent of what’s happened,” said economist Kim Hill at the Center for Automotive Research in Ann Arbor, Michigan. “You can’t build a car with 97 percent of the parts -- you pretty much need all of them.”


Lisa Ann Cairns, Ph.D.
Written on Tuesday, 15 March 2011 23:09 by Lisa Ann Cairns, Ph.D.

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