Apple helps Japan as supply chain problems grow

By Jonny Evans

Apple's [AAPL] iPad 2 has sold out, shifting at least half a million units across its launch weekend, but manufacture and distribution could be impacted by the appalling disaster unfolding in Japan, which has bought production at some key silicon and memory makers to a halt.

"Demand for the next generation iPad 2 has been amazing," Apple spokesperson Trudy Muller, told The Loop. "We are working hard to get iPad 2 into the hands of every customer who wants one as quickly as possible."

This could be harder than it sounds. Japan supplies as much as 40 percent of the world's flash memory chips. While long-term Apple supplier Toshiba claims its factories are now operating normally, flash memory prices have risen by as much as 20 percent since disaster struck.

Component complexity

Japan makes more than 40 percent of the world's electronic components. Some of the world's largest suppliers of key materials are based in the disaster zone itself, where earthquake, tsunami and radiation leaks from the Fukushima Daiichi nuclear plant have wrecked lives and devastated infrastructure.

[This story is from Computerworld's Apple Holic blog. Follow on Twitter or subscribe via RSS to make sure you don't miss a beat.]

"Sumco Corporation and Shin-Etsu Chemical, which supply most of the world’s silicon wafers, both ceased production at factories," in the region, reports IDG News Service. There's no word yet on when production will restart -- or if production workers will be in position to actually return to work, given that many, many thousands of folk are now homeless.

Battery production will also be impacted.

Japan's Sony, Sanyo and Panasonic are the biggest battery cell suppliers in the industry, says Digitimes. Panel prices may also feel the pinch -- these may be manufactured elsewhere, but require Japanese-made components such as optical films and special adhesives for production.

What I'm suggesting is that supply for key components used in the manufacture of consumer electronics products, including Apple's, is likely to be impacted for an extensive period.

Disaster relief

It's a credit to Apple, Google and others that when disaster struck they immediately moved to do what they could: Google launched a people-finding service via its Crisis Response pages, while Apple launched an American Red Cross appeal via iTunes.

Apple also made its own relief effort for its staff in Japan. It supplied food, water and blankets for its retail and corporate staff, allowed them to stay overnight in its shops (with their families if they were in the area) and maintained Internet and free Wi-Fi access for all.

"You know how in disaster movies, people on the street gather around electronic shops that have TVs in the display windows so they can stay informed with what is going on? In this digital age, that's what the Tokyo Apple stores became,"  a letter sent to Digg founder, Kevin Rose tells us.

"Because the trains and phones were down, almost everyone who worked in Tokyo was stranded deep in the city. All the hotels were booked, the roads were jammed, so hundreds of people were instantly homeless. Apple told all of their staff - Retail AND Corporate - that they could go sleep at the Apple stores. The Senior managers at the stores had been notified earlier and unbeknownst to us, had gone out to stock up on food and drinks after the very first quake hit."

It's impossible to estimate the full long-term consequences of what's going on in Japan.

Strong and frequent aftershocks continue, while relief efforts are hampered by massive infrastructure damage and radiation leaks from damaged nuclear power plants. Hundreds of thousands are homeless and have lost all possessions.

If you want to donate to help relief efforts in Japan, don't trust the scammers, go direct via: American Red Cross.

Fear and uncertainty

We're entering a period of uncertainty. Reflecting this, tech stocks this morning are bleeding.

  • Apple is down $9.79 (2.77 percent).
  • The Dow is down 1.91 percent
  • Nasdaq down 2.16 percent
  • S&P 500 down 2.09 percent.
  • In Europe, the German Dax index fell 5 percent, with technology, auto manufacturing, energy and nuclear energy shares particularly impacted.
  • In Japan the Nikkei 225 shed 10.6 percent this morning.

In the wider context, the impact of events of this magnitude on the global economy will be painful, but with broad social unrest afflicting key oil-producing nations we can also anticipate increased costs in transportation and infrastructure.

This will impact supply chain and inventory management.

Apple's challenges:

Apple must figure out how to maintain iPad production and component supply when conceivably some key suppliers are out of action.

It must also figure out how to deliver the product into new territories, while dealing with incredible demand -- there's now a 4-5 week wait for online orders to ship in the US.

These challenges will complicate Apple's iPad and future product launches. This scenario will also confound efforts by any other consumer electronics company to match Apple's offering on price, even where they can source what seem set to become even harder to find components. These events will impact across the industry.

Your thoughts? Let me know in comments below. I'd be very happy if you chose to follow me on Twitter so I'm able to let you know as new reports get published here first on Computerworld

Copyright © 2011 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon