Chips Down: Japanese Crisis Takes Toll on Electronics Cos

Earthquake and tsunami damage factories, badly disrupt the country's power and transportation infrastructure

Last week, chips that store eight gigabytes of data – for digital cameras, smart phones and other devices – cost as little as $7.30 each on the spot market, where many manufacturers buy components. On Monday, the cost was around $10.
That jump in price illustrates how the disaster in Japan has immediately affected the supply of all sorts of components used in myriad consumer electronics and other products. The earthquake and tsunami there have damaged factories and disrupted the country's power and transportation infrastructure.
Factory closures are already creating problems in the tech industry. Toshiba, which produces roughly a third of the world's chips used to store data in cameras, smart phones and tablet computers, said on Monday that it had closed some factories and that its production would be affected.
The daily spot market for those chips rose 10 to 27 percent, said Jim Handy, founder of Objective Analysis, a semiconductor manufacturing research firm in Silicon Valley, who has been tracking these prices.
Analysts said small companies in Japan, China and other Asian countries would bear the brunt of those price increases, as larger companies tend to have long-term contracts for parts. But even giants like Apple could be affected.
Over the last year, Apple has had a difficult time meeting demand for the iPad and the iPhone, and the new iPad 2, which went on sale Friday, sold out quickly.
"Toshiba, which is one of their suppliers, has been impacted, and I think it will create more of a challenge in meeting their demand," said Dale Ford, vice president for market intelligence at IHS iSuppli, a research firm. Apple declined to comment.
At the same time, nearly all automakers, even those with no plants in Japan, could be forced to halt production of some models in the weeks ahead if Japanese suppliers are unable to quickly resume making electronics or other parts used in the vehicles, analysts said Monday.
Toyota and other Japanese automakers said that they hoped to restart production at most of their domestic plants this week, but that they were still evaluating how much the disaster had damaged some factories and nearby roads, railroads and ports.
If shipments cannot be made, dealerships in the United States could start to run short of some small cars, hybrids and luxury models. "In a couple of weeks we could start feeling the effects," said Rebecca Lindland, an analyst with the research firm IHS Automotive in Lexington, Mass. "It could be something that's really pretty minor, but if it's specific to that vehicle you're not going to be able to produce that vehicle."
More immediately, Toyota will miss out on building 40,000 vehicles by keeping all of its plants in Japan closed through Wednesday. Plants that build the subcompact Yaris and two small cars for the company's Scion brand are expected to be closed longer because they were closer to the epicenter.
The overall impact of the unfolding crisis on the consumer electronics supply chain remained hard to assess, as companies gave few details about damage. The extent and duration of disruptions in electric power and transportation remained impossible to predict, as well.
But Japan is a major global supplier of chips, flat-panel displays and other components used in devices like computers, tablets, digital cameras, Blu-ray players and televisions, as well as a major exporter of consumer electronics. Companies big and small are beginning to feel the pain.
On Monday, Sony, Canon and Fujitsu – which, like Toshiba, supply parts as well as make finished products – also said they had shut some factories.
Canon said its plant in Utsunomiya suffered extensive damage, including
collapsed ceilings, electrical, gas and water damage, and breakdowns in water, electrical and gas supply, that will take some time to restore. The plant makes a variety of specialized lenses used in camcorders, office machines and other devices.
Makers of chips and flat-panel displays may be among those most immediately affected, said Richard Doherty, president of the Envisioneering Group, a technology research and consulting company in Seaford, N.Y., in part because the manufacturing of those products depends on lengthy, multistep processes that cannot be interrupted.
"It is hard to have an interruption of power supply in the middle of the manufacturing process," he said.
While high-tech goods rely on a complex network of suppliers that help keep inventories of parts low, most manufacturers whose factories are still operating have enough parts to continue operating for some time.
"There usually are buffers of several weeks," Doherty said. "Unless there are rolling blackouts that last several weeks, the impact will be limited."
About 1.4 million, or 15 percent, of the vehicles sold in the United States last year were assembled in Japan, and nearly all cars and trucks contain some parts manufactured there, including computer chips and navigation systems. Hyundai and BMW are the only major carmakers that do not use Japanese-made electronics, according to the research firm IHS.
The disaster occurred during the peak season for automotive production in Japan. Carmakers were scheduled to build about a million vehicles this month, and Lindland of IHS estimated that the stoppages could cut output by up to 250,000.
Toyota officials on Monday were unsure how much damage had occurred at one plant, operated in a joint venture with Panasonic, that builds battery packs for the Toyota Prius hybrid car, although the plant that builds the Prius itself was not hit.
Some American dealers have said they were running low on the Prius, whose sales have been surging as gasoline prices rise toward $4 a gallon. But a Toyota spokesman, Javier Moreno, said supplies would be sufficient unless shipments of the Prius were disrupted longer than expected.
"The pipeline was full when this happened," Moreno said.
He added that it was too soon to know whether Toyota might have trouble obtaining parts for models built in North America, including the top-selling Camry and Corolla sedans, but "we're hoping that the impact will be minimal." Still, he said the company had canceled all overtime shifts indefinitely.
Toyota is especially vulnerable, analysts said, because it builds more of its vehicles in Japan – 3.3 million last year, or 43 percent of its global output – than its rivals do. Its Lexus brand of luxury cars gets all but one model exclusively from Japan.
In contrast, analysts said Honda should have fewer problems satisfying demand in the United States. Honda said it was keeping most of its Japanese plants closed through this Sunday. They build the Fit subcompact, all Honda hybrid cars and several Acura models, among others.
Nissan said that six of its plants had been damaged but that they would reopen either Wednesday or Friday. In a statement Monday, it said supplies of most nameplates were sufficient but warned that ``some Infiniti models and Nissan GTR and 370Z may experience delays in shipment.Mazda and Mitsubishi said they had suspended production in Japan through at least Wednesday, while Subaru and Suzuki intend to reopen plants Thursday.
But several firms said they were concerned about acquiring all the parts they need. GM, which does not build vehicles in Japan, issued a statement saying that it buys components from Japan and was still determining how its production might be affected.
© 2011 New York Times News Service

Advertisement