Panic buying hits IC supply chain

Mark LaPedus

3/17/2011 9:44 PM EDT

Many electronic OEMs could be engaging in ''panic buying’’ of semiconductors and electronic components, spurred by fears of supply disruptions from Japan, according to IHS iSuppli Corp. SANTA CLARA, Calif. – Many electronic OEMs could be engaging in ''panic buying’’ of semiconductors and electronic components, spurred by fears of supply disruptions from Japan, according to IHS iSuppli Corp.

Electronic distributors are reporting a surge in orders from OEM customers, trying to ensure they have sufficient inventory on hand to ride out any interruption in supply, according to the firm. Japan's earthquake may cause logistical disruptions and component supply shortages for Apple Inc.’s iPad 2, according to IHS iSuppli. And NAND and DRAM prices have jumped on the spot market.

Len Jelinek, an analyst with IHS iSuppli, also reiterated the research firm’s position, saying that the supply chain remains fragile amid the aftermath of the quake.

Surprisingly, though, IHS iSuppli has raised its IC forecast despite the recent earthquake in Japan.

Late last year, the research firm predicted that the IC market would grow 5.1 percent in 2011 over 2010. Now, it predicts that the IC market would grow 5.8 percent in 2011, 2.4 percent in 2012 and 5 percent in 2012, Jelinek said.

Jelinek also predicted that the silicon foundry market would grow 15 percent in 2011. In 2010, the IC market jumped by a whopping 31.8 percent and the foundry business grew by 46.6 percent, he said at MagnaChip Semiconductor Ltd.’s 2011 Foundry Technology Symposium here.

The analyst also warned that the forecast remains fluid amid the supply chain issues in Japan. ''The biggest concern is the unstable power grid’’ in Japan, he warned. ‘’The majority of the damage sustained affected support functions such as gas or chemical delivery systems, water or power.’’

As a result, ''IHS iSuppli anticipates that in the short-term there may be increased price pressure related to potential component supply’’ due to the quake, he said.

Others agreed. ''People are still assessing the damage,’’ said Daniel Heyler, an analyst with BofA Merrill Lynch. But for the most part, ''the supply chain will be quite lumpy,’’ he said.

Nonetheless, there is a sense of panic buying in the market. ''While the semiconductor supply disruptions are bad, they could have been worse; the recent buildup in global semiconductor inventory may serve to mitigate the impact of reduced supply from Japan,’’ according to IHS.

IHS iSuppli in February warned global semiconductor inventory levels had risen to alarmingly high levels, surging to a two–and-a-half year high in the fourth quarter of 2010. ''Although not completely compensating for supply disruptions from Japan, these excessive inventories may provide some cushion for global semiconductor supply,’’ it said.

Still, OEMS are nervous and for good reason. ''Japan is facing rolling power outages, with frequent electricity supply interruptions in some areas,’’ according to the firm. ‘’’This represents a particular hazard in the production of raw materials for semiconductor manufacturing.’’

Indeed, Japanese silicon wafer makers SEH and Sumco have reported a disruption in service.

The country is also a major provider of chemicals for semiconductor production. As reported, there could be a shortage of resin materials for chip packaging.

''Wafer supplier Shin-Etsu Semiconductor and Sumco have halted production in some of their facilities due to damages and power outages, according to VLSI Research Inc.. ''Some of these facilities are expected to stay off-line as Japan grapples with the devastating earthquake aftermath. Wafer production in the affected region is around 20 percent of the world's total. However, there are many critical materials that mostly come from Japan. These shortfalls will prompt all chip suppliers to be more proactive by increasing their order activity and production as they approach Q2, which is a period of a build-up for the industry.''

There are 130 production semiconductor fab lines located in 53 locations in Japan. Semiconductor facilities in Japan that had suspended manufacturing activities after the earthquake cannot truly commence full production again until the aftershocks cease, according to IHS iSuppli.

Earthquakes ranging from 4 to 7 on the Richter scale will make it impossible to fully restart these fabs until the earthquakes stop happening with such frequency, IHS iSuppli research indicates. Every time a quake tops 5, the equipment automatically shuts down.

In any case, the events have impacted the supply chain. Last Friday, ''spot prices jumped across the board following the earthquake in Japan. Speculation about a power outage at Toshiba’s Fab 4 brought trading to a halt as traders and brokers stopped their offerings amid concerns about a potential supply cut,'' according to VLSI Research. ''Even though most of the fabs in Japan have reported minor damages, the quake is likely to have serious impact in the supply chain. This will drive DRAM and NAND flash prices considerably higher in the coming weeks.''

http://www.eetimes.com/electronics-news/4214164/Panic-buying-hits-IC-supply-chain