The earthquake that struck off the coast of Japan's main island, Honshu, was magnitude 8.9. It is a major human disaster that will also have significant near and long term affects on the electronics industry. The earthquake is significantly more powerful than the 1999 earthquake in Taiwan that caused significant damage in Taipei. It was only 7.8 on the Richter scale. Likewise, the 1989 Loma Prieta earthquake was a 6.9, 100x less powerful than an 8.9, and it halted production in Silicon Valley.
The world is just starting to come out of a global recession and has been hit with major unrest in the middle east causing rising energy costs. The earthquake will likely have a negative impact as well given Japan's importance to the electronics industry. I spoke with Jim Handy of Objective Analysis to find out how the earthquake will impact the semiconductor industry.
Wong: Have there been other earthquakes in Japan that have affected the semiconductor industry?
Handy: Other earthquakes in Japan that have caused concerns to the semiconductor industry have been far smaller than today's. This includes a 5.9 magnitude earthquake in September 2008, two measuring 6.0 and 6.8 in July 2007, and one measuring 6.9 in March of 2007.
Keep in mind that the Richter Scale is a logarithmic scale. My concern isn't just for little ole semiconductor folks but you've got a large land mass that will have significant infrastructure problems and long-term rebuilding problems. What do you do when all the glass within a 500 mile radius is broken? Who's going to rebuild all those ceilings? Check all those supports? Manufacture the fresh drywall? First you have to secure the electricity and water distribution system.
California, pay attention - this may happen to you one day!
Wong: How much affect will this disaster have on Japan's ability to support the electronics industry?
Handy: It appears that earthquake and subsequent tsunami have had a significant negative impact on the infrastructure including the semiconductor industry.
Wong: What aspects of the semiconductor industry does Japan have a major impact in?
Handy: Japan manufactures 40% of the world's NAND flash and roughly 15% of the world's DRAM. It is a significant source of chips to support consumer electronics devices as well. Even a two-week shutdown will remove a sizable share of each of these from production. It doesn't take a large production decrease to cause prices to increase dramatically as shown by similar effects in oil costs.
Wong: What about wafer fabrication? Japan has a significant number of facilities.
Handy: There are a large number of semiconductor plants spread throughout Japan (Fig. 1). Objective Analysis is contacting as many of these companies as we can to check on their status, but the earthquake is so large that it might be several days before its impact can be fully comprehended.
Keep in mind that Renesas is the world's leading microcontroller manufacturer. It has 3 plants near the epicenter and Freescale has one as well. An MCU shortage would be very important since there seems to be one or more MCUs in everything today. The typical automobile these days contains something like 30 microcontrollers.
Wong: How will this impact price and availability of this technology?
Handy: We anticipate phenomenal price swing and large near-term shortages as a result of the earthquake. This will ripple through the consumer electronics industry as well because of its comsumption of semiconductors.
Realize that semiconductors are the basis of everything electronic, whether it's "just NANDs" or everything else the chip guys build. Everything about the electronics industry from consumer products to enterprise network equipment will be impacted with a delay. Recovery could take a good while. Stock up on canned food, there may be some shortages for a good while. On one hand memory can be fairly readily changed out and even cut down and later expanded, but most chips have no second-source. These will be extremely difficult to replace if your supply goes to zero.