Update: Japan quake could hit semiconductor production, prices

Computerworld - Because Japan produces more than 40% of the world's NAND flash memory chips -- and 15% of its DRAM -- the 8.9-magnitude earthquake that hit today could seriously affect worldwide semiconductor supplies, according to research firms.

According to Jim Handy, an analyst with semiconductor research firm Objective Analysis, it would not take a large drop in wafer production to cause prices to increase dramatically. Even a two-week shutdown of fabrication plants would remove from production a sizable share of wafers. As a result, the research firm is predicting major price swings and near-term shortages.

Earthquakes of lesser magnitudes, such as a 5.9-magnitude one in 2008 and two quakes measuring 6.0 and 6.8 in 2007, raised similar concerns about the semiconductor industry, according to Objective Analysis.

"The way I look at it is that Tokyo had buldlings catch on fire and an oil refinery just north of the city caught on fire. So I have to look at everything [near] the city, and consider that it could be seriously impacted," Handy said.

Not everyone agrees with the Objective Analysis view, however. Market research firm iSuppli does not believe that DRAM and NAND production will be affected by the quake.

ISuppli analyst Mike Howard said his contacts in Japan have indicated that production at facilities owned by Micron, Toshiba and Elpida Memory are far enough away from the quake's epicenter to avoid damage. "They are all in the southern and western portion of Japan -- well away from the epicenter. I wouldn't anticipate any production reduction," he said.

Howard argued that the major impact on Japan's semiconductor production will likely come from disruption to the supply chain.

"Suppliers are likely to encounter difficulties in getting raw materials supplied and distributed and shipping products out," iSupply said in a statement late this afternoon. "This is likely to cause some disruption in semiconductor supplies from Japan during the next two weeks, based on [our] preliminary assessment of the situation.

The two major DRAM fabrication facilities in Japan, operated by U.S.-based Micron and Japan's Elpida, have not been directly affected, according to preliminary indications from iSuppli contacts.

Objective Analysis argued that semiconductor demand will likely be affected, whether fabrication facilities are closed or not, because many electronics manufacturers are in Japan, and their consumption of semiconductors stop until earthquake damage is repaired.

Today's earthquake already forced Sony to shut down production in six of its northeastern factories; Nikon, which has facilities close to the quake's epicenter, may also have been affected, according to early reports.

By comparison, a 7.6-magnitude earthquake that hit Taiwan in 1999 caused significant damage in Taipei and stopped fabrication production in facilities in Hsin Chu, according to Objective Analysis. In the U.S., the 1989 Loma Prieta earthquake, which measured 6.9 on the Richter scale, stopped fabrication production in Silicon Valley.

That earthquake had only one hundredth of the power of today's earthquake.

"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," the company stated in a statement.

In many ways, Japan's semiconductor industry is far more prepared for disasters of this magnitude than facilities in other Asian countries. Not only does Japan have the most stringent building codes for earthquake preparedness, but its fabrication plants are spread throughout the country.

In Korea and Taiwan, two other major semiconductor producers, facilities are grouped together, according to Handy.

"In Taiwan, the government set up special areas for semiconductor manufacturing in Hsinchu," he said. "In Korea, they're mostly located in Chungju. If North Korea, with all its weirdness, were to drop a bomb on Chungiu, it could badly disrupt production."

Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed . His e-mail address is lmearian@computerworld.com.

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