Japan Disaster Will Lead to Component Supply, Pricing Issues: Analysts

Analysts at IHS iSuppli already are seeing pricing jumps in the DRAM and NAND spot markets, though shortages in the component supply chain won't be felt for two weeks.

Analysts are still trying to get a gauge on how the unfolding disaster in Japan, which has moved from last week's earthquake and tsunamis and now focuses on nuclear reactor concerns, will impact the supply chain for the various computer components manufactured on the island nation.

What's becoming increasingly clear is that there will be some disruption in the manufacturing and shipping of such components as NAND flash memory and semiconductor and DRAM components, with resultant price increases to follow. But with the country in a state of flux, and the problems arising from the double punch of the earthquake and tsunami still unsettled, it's difficult to get a firm grasp on the computer component situation, according to analysts from Deutsche Bank Securities and IHS iSuppli.

In a report late March 14, IHS iSuppli analysts said they expect "significant shortages" of particular computer components, with dramatic price increases for devices built with these components.

"While there are few reports of actual damage at electronic production facilities, impacts on the transportation and power infrastructure will result in disruptions of supply, resulting in the short supply and rising prices," the analysts said in the report. "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."

There already are indications of price increases due to the disaster, the analysts said.

Analysts at Deutsche Bank said some companies are in a larger immediate bind than others.

"Japan remains a leading producer of NAND flash, CMOS Image Sensors, ASICs, and DRAM," they wrote in a March 15 report. "Given the disparate location of Fabs and the impact of rolling power outages, it is difficult to estimate the impact on semiconductor production. However within our coverage universe SanDisk has the most exposure with 100% of its front-end facilities in Japan (through Toshiba JV)."

Industry and financial analysts have been trying to get a better read on the situation since the earthquake-which first was listed as an 8.9-magnitude event, but some reports have said it was upgraded to 9.0 magnitude-and tsunami overwhelmed the northern coast of Japan March 11. For the computer industry, the risks are significant, given the size of the country's component manufacturing industry.

Market research firm Objective Analysis said March 11 that more than 40 percent of the world's NAND flash memory chips and 15 percent of the global DRAM supplies are made in Japan, where a large percentage of chips that support such popular consumer electronics devices as smartphones and tablets are made.

IHS iSuppli also said that about 60 percent of the world's silicon, used to make semiconductor chips, is manufactured in Japan. A disruption in the silicon supply chain could grow the impacted technologies to such components as bipolar transistors and small signal transistors.

For the IHS iSuppli analysts, the component shortages shouldn't be felt for the next two weeks. Right now, the global supply chain has about two weeks of excess inventory for semiconductor parts, they said. However, the shortages will start making themselves known in late March or early April, and then should linger into the third quarter.

However, there is the psychological impact of the Japan disaster, which is already driving up component pricing, the analysts said.

"Pricing for higher-density NAND flash already has climbed by as much as 10 percent on the spot market, which buyers use to procure relatively small quantities of parts," IHS iSuppli analysts said, adding that they don't "expect price volatility for OEM DRAM customers and it is likely that the average selling price for major OEM customers on the contract market will hold steady for sustained periods of time until the supply chain moves past the infrastructure challenges."

DRAM pricing on the spot market also is up, by as much as 7 percent over prices on March 11, they said.

For individual companies, most of the immediate problems have to do more with shipping and receiving of components, and not with damage to facilities, the bulk of which are located south of the earthquake epicenter. However, those supply chain problems, as well as the ability to get workers to the facilities and power interruptions, are having an impact on operations.