(By
Brian Colello, CPA)
There
is little doubt the tragic earthquake and tsunami in Japan last month
(as well as any further aftershocks) will have macroeconomic effects
that will hamper semiconductor demand in the country. Assessing the
extent of the damage is still an ongoing process, and the final tally
likely will take months to sort out. Perhaps the first attempt to size
up the damage came from Taiwan Semiconductor (TSM),
the global leader in outsourced chip manufacturing, which cut its
forecast for global semiconductor growth in 2011 to 4% from 7%
(excluding memory chips). We should be able to gain additional insight
from a host of first-quarter earnings conference calls from chipmakers
in mid-April, but in the meantime, we've summarized our initial thoughts
concerning the damage.
Japan's Role in Semiconductor Supply and Demand
Japan is one of the bigger consumers of semiconductors and is home to many electronic device makers, including Sony (SNE)
and Nikon. Aside from the country's fewer purchases of electronics and
other goods that contain chips, such as PCs and smartphones, Japanese
electronics makers have seen manufacturing stoppages due to both
structural damage to their facilities and consistent power outages in
the region, which likely will cause a near-term decline in new chip
orders. Further, many chipmakers, especially analog firms, are suppliers
to Japan's automobile manufacturers, which also have seen production
stoppages. Thus, chipmakers across the board likely will see lower
near-term demand. Companies with notable exposure to Japan include Linear Technology(LLTC) and Analog Devices (ADI), which each generate about 15% of their sales from the country, and Intel (INTC), with roughly 10% of its revenue from the region.
On the supply side of the equation, Japan is home to many
semiconductor firms and chip fabrication plants which were interrupted
by the disaster. Texas Instruments'(TXN)
plant in Miho contributes about 10% of the firm's total revenue, but
was knocked off line and production won't resume until mid-April; full
production won't resume until mid-July, and full shipments won't occur
until September. Texas Instruments' digital light projector (DLP)
devices are made in Miho, and although they account for less than 5% of
TI's revenue, the business is dependent on springtime production, as
these projectors are ultimately sold during back-to-school season.