U.S. tech industry braces for aftershocks from Japan disaster

With high-tech plants damaged and shuttered in Japan, tech could be in for big hit

With Japan devastated by last week's 9.0-magnitude earthquake and tsunami, the business aftershocks may rock various parts of the tech industry for months to come.

As Japan deals with massive loss of life, a nuclear meltdown crisis, damaged roads, buildings and communities washed away, as well as rolling electrical brown outs and black outs, its manufacturing and economic abilities have taken a major hit.

And with Japan's technology business so intrinsically tied to the industry here in the U.S. and around the world, the business effects of this disaster will be wildly felt.

Since the disaster hit just as the U.S.-based technology industry is starting to come out of the dark days of the recession, Japan's problems could be a test for a lot of companies.

Every group, from the semiconductor industry to tablet makers, smartphone makers and even the automotive industry could feel this for the next six months to a year, say industry analysts.

Michael Palma, a research manager for IDC, said numerous problems hitting the Japanese tech sector all once, as well as the sheer scale of the problems, will slow the recovery.

"The workers, whether they're in a factory or in a management role, have to worry about family members. The infrastructure, as I understand it, is fairly well shut down," Palma said. "There are energy shortages so what energy there is is being sent to critical areas first. And with transportation... if companies can make the components, they may have a hard time getting them moving."

Questions are mounting: How flexible and quick will companies be to deal with supplies given the crippled transportation system? How will companies deal with a possible shortage of computer chips and components after manufacturing facilities were damaged or destroyed? How quickly can some companies move manufacturing out of Japan and to other sites?

[ See highlights: How Japan's disaster is impacting the tech industry ]

Charles King, an analyst with Pund-IT, said there are not many clear answers to the many questions right now.

"It's hard to call this one right now," King said. "Reports of damage to facilities are still being reported and it seems clear that the effects of the disaster on Japan's electrical grid will significantly impact and disrupt industries across the country."

"Early estimates suggest that disruptions could last six months or more," he said.

Dan Olds, an analyst with The Gabriel Consulting Group, said at this point companies are still trying to wrap their heads around the extent of the problems they're dealing with. "There was definitely damage to Japan's high-tech infrastructure, but even the companies who own the facilities don't know the true extent of their problems yet," Olds said.

"It's hard to say which companies have been hit worst. Of course, the major name-brand Japanese companies, like Sony, Toyota and Nissan, have taken very large blows and have suspended Japanese operations for the duration of the crisis," he said. "We're going to see the effects of these closures and disruptions from other, lesser known brands in the coming weeks."

Olds also noted that recovery will be uneven, with some companies getting back on their feet sooner than others. It will all depend on how diversified their supply chain is and how badly damaged their facilities have been.

"This is a massive test of the resources of the world-wide technology infrastructure," Olds said. "Given the recession, there should be some slack production capacity out there, but how quickly can it be brought online? We just don't know yet. We also don't know if or how this might derail innovation or product advances, many of which originate in Japan."

King added that it's not only the makers of, say, chips, components and LCD screens, for example, that will be affected.

You also have to consider companies such as Apple, which use those parts in their own products. This means that smartphone and tablet makers, and automotive companies, which use a lot of chips in their vehicles, will be feeling the pinch.

And if parts are in short supply, the price will go up -- for manufacturers and consumers.

"Automakers, who are major customers of embedded processors, have expressed concerns about how component availability will affect their operations," King said. "Depending on the extent of the damage and whether vendors can shift production to other facilities or partners' operations, there could be lasting effects across electronics products of every kind."

How Japan's disaster is impacting the tech industry
  • Nvidia reported that its third-party production factories are outside of Japan so unaffected by the disaster. However, executives now are in Asia, trying to deal with supply chain issues. Some of Nvidia's substrate material (used in chip assembly) comes from Japan so ongoing power issues could make it difficult to get that material by Q2, said Ken Brown, an Nvidia spokesman.
  • Texas Instruments (TI) announced that its wafer manufacturing site in Miho, Japan, which is about 40 miles northeast of Tokyo, suffered "substantial damage" during the quake. TI execs estimate they should be back in full production in July and have full shipment capability in September. The company is working to shift 60% of its wafer production to other sites.
  • AMD does not have chip production facilities in Japan, but a business office in Tokyo received minor damage. AMD is fully operational there.
  • Intel also does not have manufacturing facilities in Japan and reported that all of its employees there are safe.
  • Analysts at iSuppli report that impacted components will include NAND flash memory, DRAM, microcontrollers, standard logic, LCD panels, and LCD parts and materials. Prices of chips, including NAND flash memory and DRAM, already have risen this week in the wake of the disaster.
  • Sony announced that production has been suspended at eight of its facilities. The company reported that "several" facilities were affected by the quake and tsunami, and operations at "some" facilities were shut down because of power constraints.
  • Austin-Texas-based Freescale Semiconductor reported that it has shut down a facility in Sendai, Japan, which manufactured flash memory embedded microcontrollers, analog/digital embedded microcontrollers, pressure sensors and acceleration sensors. Freescale had decided back in 2009 to close this particular fab so will continue to transfer production to other locations. The company noted that workers were evacuated safely.
  • The Fujitsu Group reported that six of its plants have been damaged.

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin or subscribe to Sharon's RSS feed . Her e-mail address is sgaudin@computerworld.com.

Copyright © 2011 IDG Communications, Inc.

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