Turmoil In Taiwan -- OEMs, chip makers scramble for answers
Sep. 24, 1999 (Electronic Buyers News - CMP via COMTEX) -- Acma Computer Inc.'s Allen Lee is worried.
Fearing that Taiwan's earthquake will be a major detriment to his business, the president of the systems
maker exercised his best managment skills last week to develop a backup component-sourcing plan.
And for good reason. Acma, Fremont, Calif., relies on Taiwan for a substantial amount of components. "I
feel it will be much worse than what people are saying," he said.
Lee is among hundreds of executives at electronics OEMs and fabless semiconductor companies
scrambling this week to determine the long-term toll the natural disaster will take on the global supply
chain.
Many supply-chain managers and executives are putting contingency plans in place to deal with the
aftermath of the quake.
There are varying opinions in the market on what lies ahead, with some saying that the next several weeks
will present little cause for concern about inventory availability, and others predicting that supply dilemmas
will surface a few months from now.
Much of the confusion stems from the complications that often follow natural disasters. Taiwan's
infrastructure has been pounded, power outages are widespread, phone lines are jammed and service is
limited, and government and business leaders are busy providing relief to victims. Many are predicting that it
will take seven to 10 days to determine the extent of the damage and assess the long-term effects.
In the meantime, companies up and down the supply chain are handling the situation differently.
Here are what several companies told EBN last week:
On the OEM front
Networking-equipment maker Newbridge Networks Corp., Ottawa, is evaluating its demand forecast for the next six months, and is
gauging how much additional inventory it can buy to beef up safety stock, according to Don Hnatyshin, corporate vice president of
worldwide procurement.
Based on reports from its major chip suppliers-Altera, PMC-Sierra, and Xilinx -there appears to be enough inventory, either in
finished goods or in work-in progress, to cover demand for the next three or four months. But what happens beyond that is what has
Hnatyshin concerned.
"The thing we are looking at is how to increase safety stock, especially for things that have just been designed in," he said. "What will
happen to the wafer starts that were supposed to start in the weeks during the disruption? This is a time when the relationships
between companies will offer a great deal of value."
Dell Computer Corp. is also studying alternatives. "We're in a big assessment mode here," said a spokesman for the Round Rock,
Texas, computer giant. "We're looking at a variety of things, including internal production of notebooks. We're looking at ramping
that as we move forward."
Dell outsources most of its notebook production to companies in Taiwan, and only had some sales and procurement staff overseas.
"We're still able to get product, but we're not able to make any definitive statements yet. We learn a little more each day."
Other OEMs, including Compaq Computer Corp. and Gateway Inc., said they are not seeing any immediate impact associated with
the quake.
"Our suppliers of components and systems do not appear to have sustained major damage," a Compaq spokesman said. "We have
multiple sources of supply for the parts we source from Taiwan, but at this time, we don't think there will be a significant supply
disruption."
In addition, the quake is expected to have little effect on hard-drive vendors that assemble their subsystems primarily in Singapore
and Malaysia, according to executives at Seagate Technology Inc. and Western Digital Corp.
However, there could be some indirect impact caused by the supply of LCD panels, according to Danielle Levitas, an analyst at
International Data Corp. (IDC), Framingham, Mass. Without LCD panels, no notebook PCs are manufactured, so no 2.5-in. disk drives
will ship, she said.
The CEM take
Contract electronics manufacturers also seemed optimistic about their ability to successfully operate during this unsettling time.
"We're in excellent shape even though it seems like a major earthquake in Taiwan. We don't have any foundry contracts with Taiwan
directly," said Andrew Gort, senior vice president of global supply-chain management for Celestica Inc., Toronto. "Most of the
components we rely on are not sourced from Taiwan; they are mostly from Japan, Korea, and the U.S. We also have sufficient buffer
stock planned for those parts where there is an indirect impact."
The message was echoed by Flextronics International Ltd. Early last week, Michael Marks, the San Jose company's chairman and
chief executive, indicated that the CEM saw little in terms of supply-chain related problems. "So far, we don't have any reports of any
massive damage at a factory, for example, that would really disrupt the supply chain," he said. "So far, so good, but we don't have
all the data in yet."
Further downstream
Given the amount of silicon being shipped out of Taiwan, many in the industry are concerned about the impact the quake will have
on fabless semiconductor suppliers. One area that is expected to be hit fairly hard is the graphic-chip industry, much of which relies
on foundries in Taiwan, said Roger Kay, an analyst at IDC. Other semiconductor companies and foundries also will be affected
because of the amount of time it will take to recalibrate manufacturing lines and return to full utilization, Kay added.
Some chip makers, however, said there will be only a slight hiccup.
K.Y. Ho, president and chief executive of ATI Technologies Inc., Thornhill, Ontario, said he expects Taiwan's production to begin
again in earnest in about two to three weeks. The company also maintains a two-to-three week buffer of inventory in case of such an
emergency, but Ho acknowledged that, beyond that window, there may be potential problems
"We supply all major PC manufacturers, and that means for the upside as well as the downside," he said. "We have a buffer inventory
in case of any interruption, so for up to about two, three, or four weeks, there will be no major impact for ATI. But if it's any longer,
everybody will face difficulties."
Others, including Broadcom Corp., the high-flying communications-IC supplier in Irvine, Calif., have already attenuated their risks.
The company gets 50% of its wafers from Taiwan Semiconductor Manufacturing Co. Ltd., while the remaining portion comes from
Singapore's Chartered Semiconductor Manufacturing Pte. Ltd., according to Bill Ruehle, chief financial officer for Broadcom. The
company has qualified its parts with both TSMC and Chartered. "If there is an extended downtime [at TSMC], we have the option to
move our products to Singapore," he said.
LightSpeed Semiconductor Corp., a small supplier of laser-customized ASICs that relies on TSMC for all of its production, also was
upbeat.
"Our exposure is very small because the majority of material that we consider 'in process' is really just being held in wafer banks
waiting for final etch," said David Lautzenheiser, vice president of marketing for the Sunnyvale, Calif.-based company. "Our hope is
that there's not too much collateral damage to the processing flows that will take a long time to bring back up."
-This story was reported by Jennifer Baljko, Mark Hachman, Mark LaPedus, Bolaji Ojo, Richard Richtmyer, and Crista Souza; it was
written by Jennifer Baljko.
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What Taiwan Means To The Electronics Industry
1998 worldwide market share (%)
CD-ROMs: 34
Computer cases: 75
Desktop Pcs: 17
Graphics cards: 31
Keyboards: 65
Monitors: 58
Motherboards: 61
Mouse devices: 60
Notebooks: 40
Power supplies: 66
Scanners: 84
Source: Information Interchange Inc.
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