MarketWatch Commentary

With the epicenter located 250 miles south of Taipei, Tainan recorded a magnitude 5 while Hsinchu recorded magnitude 2 levels.  Both levels are significant and have impacted operations at these two important areas for semiconductor and LCD production due to power loss, temporary stoppages, equipment damage, and product damage or loss.  The mid- to long-term supply chain effects are forecasted to reduce or eliminate any downward pressure on ASPs, especially for panels, which were facing lowered pricing pressures.

The following are still initial reports and are likely to be modified as more time allows for more data and information to be collected:

Wafers:

• TSMC is still assessing final impact, but a minimum of 40,000 eight-inch wafers, roughly 1.5 days worth of production, was lost.  TSMC's earthquake contingency plans are in place and moving the company's facilities and processes through the disruption. (see here for source information).  The impact on 2Q10 revenue has yet to be assessed but initial estimates are at ~1%, as reported by The Wall Street Journal.
• Advanced Semiconductor Engineering, Inc. reported minor disruptions, is still inspecting packaging equipment, reviewing financial losses, but told TheWall Street Journal that production has resumed.  Bloomberg reported that the Kaohsiung plants were operating normally.
• UMC reported minor damage to some production equipment but did not report any significant impact to their operations, as reported to Bloomberg.

Displays:

NOTE: the average time that the following companies have taken to resume normal production after a temporary shut-down is 2-5 days after an earthquake, according to DisplaySearch Blog.

• Hannstar Display Corporation, had evacuated employees and shut down the factory temporarily but did not otherwise report any losses or effects on their production according to both Bloomberg and The Wall Street Journal, and confirmed by Smith & Associates locally.  DisplaySearch reports HannStar's took 3-5 days to resume production after the last earthquake. 
• AU Optronics Corporation also evacuated employees and temporarily shut down production at their Tainan facilities.  They have reported to newswires that their finances and operations suffered "no significant impact."
• Chi Mei Optoelectronics also reported temporary shut downs and evacuations but added that resumption of full production activities is likely to take one to two days, as reported by Barron's.  DisplaySearch reports an average of 2-3 days for CMO to resume production post earthquake.

More detailed information about glass substrate production is provided in detail by DisplaySearch here.

Comment (0)

The semiconductor industry has been faring better than many industries based on 4Q09 reports.  The 1H10 forecasts continue to show the tendency for pent up demand to be strong from consumer and corporate sales alike.  However, with the loss of almost two years of CAPEX investments to support fabs, the growth that we're engaging now may prove to be a tough challenge for the industry because of these "missed investments," as underscored by Bill McClean, President of IC Insights.

According to McClean, IC Insights research and data show that despite the "worst recession in 63 years (since 1946) in 2009, flat PC unit shipments were quite an amazing accomplishment. Moreover, cellphone unit shipments were down only 5%.  Now consider that both PC and cellphone unit volume shipments are forecast to increase at double-digit rates in 2010."  This begs the following questions from the recent McClean Report: "What effect will this have on the IC industry? Are we on the cusp of an all-out IC market boom for 2010?"

IC CAGRs are forecasted in the 9% range; ASPs and revenue are set to rise across the board for memory, even for DRAM;  increased demand is expected for PCs; and emerging economies' consumers are hungry for electronics.  Underscoring this positive reality is the recently released, strong, 9%  increase in North American-based semiconductor equipment manufacturers book-to-bill ratios, now at 1.03 for December, holding onto a 6-month rise. 

The 2010 forecasts are no longer just New Year's dreams.  While exciting and welcomed news, these forecasts pose interesting challenges for the industry that must now grapple with being able to meet what TSMC calls "urgent recent increases in customer demand."  TSMC has begun both new construction and capacity expansions at their fabs in Taiwan, increased R&D spending for 2010 by 25%, and plan to hire 3,000 new staff, "primarily engineers." 

Those companies who remain from the last round of survival of the fittest now have a new, positive battle ahead.  Economic indicators are up 1.1% for December 2009 and point to economic growth this Spring.  Are we really ready?!

Comment (0)