cUpdate: Earthquake rocks global
supply chain
By EBN staff
Electronic Buyers' News
(09/21/99, 06:26:29 PM EDT)
Suppliers and OEMs are scrambling to unearth the full effects of the
massive earthquake that struck Taiwan Tuesday, as the electronics industry
looks warily toward its lean inventories and begins to wonder how it will
satisfy demand during the market's busiest season.
While high-tech executives continue to assess the quake's impact, several
PC OEMs said so far they have not seen major supply chain or operational
disruptions. Reports from component suppliers were mixed, but some
semiconductor makers said it could be two to six weeks before the full brunt
of the disaster is felt in the supply chain.
The most immediate issue OEMs will encounter lies in the area of
delivery. UPS Worldwide Logistics Group, the Atlanta-based subsidiary of
United Parcel Service Inc., said its Taipei facilities are operational, but
without electricity. Marketing manager Lynnette McIntire said power is
expected to be restored by Friday.
The UPS division reported that while the airport was open Tuesday
morning local time, the country's sea and air customs offices remained
closed. Packages coming into Taiwan were being diverted to Singapore
and other Asian ports, according to McIntire. Additionally, many
Taiwanese customers have been unable to accept delivery, so UPS plans
to hold those packages at local facilities in the meantime.
"It's an unpredictable situation right now and we don't know when the
infrastructure will be up and running," McIntire said. The Taiwan division
will be "looking at things day-to-day and taking action where appropriate."
At Federal Express Corp., a spokeswoman said flights to and from Taipei
have been unaffected, but reported outages at the airport's cargo
warehouses as well as disruptions to customs. FedEx is offering pick-up
services for outbound delivery in the cities of Kaohsiung and Tainan, the
spokeswoman said.
Victor deDios, a DRAM analyst with research firm deDios & Associates,
Newark, Calif., said his biggest concern is that Taiwan is becoming a
bottleneck for supply. "If you have a few days with nothing coming in and
nothing coming out, when it finally clears you have higher run rates
coming in and coming out," he said. That can lead to panic buying and
disrupt the supply chain for weeks, he added.
Meanwhile, with the electronics industry's inventories already at historic
lows, suppliers and OEMs are scurrying to ensure orders are filled and
production shifted to other sites to offset anticipated shortages.
Compaq Computer Corp., which has a customer support and sales office in
Taiwan, but no systems manufacturing sites, said it is still assessing the
situation. "At this time we have heard of no significant damage to the
suppliers' facilities beyond the power outages," said a spokesman.
The spokesman could not immediately comment on how the earthquake is
expected to affect component sourcing and procurement from Taiwanese
suppliers, or if alternate plans have been put in place to ensure a steady
stream of supply to its manufacturing partners.
A Gateway Inc. spokesman offered a similar message. "There are no major
problems from what we are seeing," he said. "Laptops are running on the
lines and the airport is open."
Jabil Ciruit Inc., a $2 billion contract electronics manufacturer based in St.
Petersburg, Fla., sources components from many companies in Taiwan,
and chairman and chief executive William D. Morean said there is concern
about the earthquake.
"The first indication I've gotten is that we're not going to see anything that
will result in a meaningful impact, but we're not done drilling down,"
Morean said. "We have to look at every element."
A company spokeswoman said Jabil executives have been phoning and
faxing suppliers all day for updates on production plans, and have been
ensured by some major vendors that production will be back to normal
soon.
For component suppliers coping with the full force of the earthquake's
aftermath, however, little can be done to inspect facilities until power is
fully restored.
A few more specialized IC makers with foundry ties to the island, notably
programmable logic designers Altera Corp. and Xilinx Inc., are reporting
sufficient inventory to carry them through the episode. But some
commodity chip manufacturers are indicating that the quake and resulting
power outage could disrupt the flow of products for more than a week and
possibly longer.
The earthquake, which struck shortly before 2 a.m. local time about 60
miles outside of the Hsinchu Science-Based Industrial Park, has already
been blamed for at least 1,500 deaths. The temblor and several
aftershocks have left hundreds of electronics component and systems
vendors with little more than emergency back-up power to sustain key
manufacturing equipment.
Taiwan Semiconductor Manufacturing Co. Ltd., the industry's largest
foundry services provider, said it expects to lose as much as 10% of its
monthly output.
Rival UMC Group said it needs another day to assess losses, although it
reported only minor damage to equipment and its six fabs. The company
said it is working with a local power company and was able to restore
partial power to four of the facilities.
Cecile Conkle, vice president of DRAM marketing for Mitsubishi Electronics
America Inc., Sunnyvale, Calif., said it was too soon to tell how much
product will be lost to the quake. Conkle did say however, that Mitsubishi
lost about two weeks worth of DRAM during the July 29 power blackout that
struck the island.
"Generally, when you have a fully loaded fab and something like this
happens, you can easily lose 10 to 20 days or production, or even worse,"
he said.
Many semiconductor devices were in final back-end test and assembly and
were likely unaffected either by the quake or power loss. These should
satisfy the market's short-term needs, while wafers damaged as they passed
through more sensitive manufacturing steps could contribute to shortages
in two to six weeks, according to Conkle.
Mitsubishi uses foundry partner Powerchip Semiconductor Corp. to
manufacture between 35% and 40% of its DRAM, Conkle said. Following
the Tuesday quake, the company lost all power for about an hour before
emergency back-up systems were able to be activated.
"We still need to get full power restored before we can get a handle on
how much was lost and whether equipment needs to be recalibrated," he
said.
As of mid-day today, the company was still trying to determine how many
wafers were lost to the outage and the quake's violent shaking. "With some
wafers you know right away, depending on what process they're running
on, that it's outside the process window," Conkle said.
Process steps such as ion implantation, annealing, and etching, if
disrupted, could render a wafer unusable. In other cases, such as during
photo resist and metal deposition, wafers may "stripped" back a step in the
process, although this often adds new variables, Conkle said.
"It's not happening at a good time," Conkle said. "We're getting some
great upside opportunity presented to us by our OEMs. This event in
Taiwan, while it's most difficult for the people there and our friends, came
at a bad time for business."
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This thing could actually hurt all the players in the EMS sector. Doesn't look good.
MArc |
