Picking up the pieces in Taiwan -- Recovery is under way, but parts shortages
loom
Oct. 01, 1999 (Electronic Buyers News - CMP via COMTEX) -- Production resumed at most fabs and
manufacturing plants in Taiwan last week, but it could still take weeks before its electronics industry
rebounds from the earthquake that struck Sept. 21.
Given the size of the earthquake, local electronics concerns are making a quick comeback. Having been flat
on their backs during the week of the quake, many have resumed production to one degree or another. And
Taiwan's chip makers, including the foundries, plan to be at or near full production this week.
Still, the quake's effects will be felt for some time, and it has exacerbated the capacity crunch that was
already building throughout the electronics supply chain.
PC and peripherals makers face shortfalls or delays in shipments, which, in turn, could hurt foreign OEMs.
And Taiwan's printed-circuit-board manufacturers have raised prices, sending shock waves throughout the
PC motherboard industry. Supplies of chip and system-level products are also expected to be tight, and
price hikes could follow.
Indeed, Taiwan's electronics industry, and its customers, will not recover overnight, said D.C. Chen,
president of Information Interchange Inc., a market research company in San Jose.
"There will still be major disruptions in the worldwide supply chain," Chen said. "The recovery in Taiwan
depends a lot on the power situation, which is still a major problem."
Taiwan Power Co. (Taipower), the state-run power monopoly, has put Hsinchu, home to the country's major
semiconductor fabs, at the top of its priority list. As of last week, chip and PC makers in Hsinchu were
receiving nearly all of their power needs.
Other key science parks around the island were also obtaining power from Taipower. But Taiwan's
manufacturers outside of these parks, and most of the island's 21 million residents, were on a daily
power-rationing program. Most were getting about seven hours of power a day.
Foreign OEMs face parts shortages
"Power is still an issue here," said Chiou-Ming Chen, general manager of Hewlett-Packard Co.'s international purchasing
organization (IPO) for the Greater China region, which includes China and Taiwan. Hewlett-Packard is one of several major OEMs
that spend billions of dollars on parts in Taiwan.
HP plans to buy $2.5 billion to $3 billion worth of PC-related products from both Chinese and Taiwanese companies this year,
compared with $1.5 billion in 1998, Chen said. In Taiwan, HP buys PCs, boards, scanners, chips, and passive components.
"The timing of this could not have been worse. This is the time when we ramp up production for the fourth quarter," Chen said. "In
general, there are some delays with our suppliers, but it's not that severe. We have suppliers that have manufacturing sites in Taiwan,
and we're working closely with them. Fortunately, many of our suppliers have production sites in China and Southeast Asia."
Other IPOs face similar problems, but most were unwilling to comment on the delicate situation. This includes the biggest consumer
of PC products in Taiwan, Compaq Computer Corp., which plans to buy more than $7 billion worth of systems and components from
local companies.
A source at Dell Computer Corp.'s IPO in Taiwan said the company is working closely with its Taiwanese suppliers to resolve possible
disruptions in product shipments, but he did not elaborate.
A spokeswoman at IBM Corp.'s offices in Taipei declined to comment on reports that some of its key manufacturing partners were
having difficulty recovering from the quake. IBM, which buys PCs, peripherals, and components from Taiwanese suppliers, relies on
two major local PC assemblers- Acer Inc. and Universal Scientific Industries (USI) Co. Ltd.
USI, which is located near the earthquake's epicenter in Nan Tou, lost only a few days of work and was up and running last week,
according to a spokesman for the company, which makes motherboards for IBM.
And Taipei-based Acer, Taiwan's largest PC maker, lost a few days' output during the week of the quake, but has since recovered and
is back in full production, according to a spokeswoman. Acer derives nearly 40% of its sales from IBM, analysts said.
Update from TSMC and UMC
Other companies were less fortunate. Among the hardest hit by the quake were Taiwan's chip makers, particularly the island's two
major foundries, Taiwan Semiconductor Manufacturing Co. (TSMC) Ltd. and United Microelectronics Corp. (UMC), both of which are
in the Hsinchu Science-based Industrial Park.
TSMC said it had to scrap nearly 28,000 wafers that had been in process during the quake. That amounts to the total monthly output
of an 8-in.-wafer fab. TSMC, the world's largest foundry, estimates the earthquake will cost the company more than $88.2 million in
sales from September through December.
TSMC began producing wafers to some degree last week, with full production slated for early this week, according to Ron Norris,
senior vice president of sales and marketing for the company.
The supply of wafers remains tight, however. "Our total impact [of lost services] will be about 11 days to two weeks," Norris said in a
conference call with analysts last week. "Companies will get [fewer wafers] than they originally wanted in the fourth quarter."
TSMC rival UMC faces a similar problem, and expects to lose $45 million in sales in the fourth quarter. UMC will be in full
production this week as well, said Jim Kupec, president of UMC's U.S. operations, in Sunnyvale, Calif.
Others were more fortunate. Taiwan's major IC-assembly houses experienced little damage or downtime. Many of them, including
Advanced Semiconductor Engineering (ASE) Inc. and Orient Semiconductor Electronics (OSE) Ltd., are based in the southern city of
Kaohsiung, far from the epicenter of the earthquake.
Most memory-module makers were also up and running last week, including Apacer, a subsidiary of Acer. Despite the speedy
recovery, executives were unsettled about the long-term effects on the market.
"The earthquake was devastating to not only the IC industry and Taiwan, but to the world," said Lynn Hsu, program manager of
American Marketing Operations for Apacer, based in Taipei. "The full effects of the earthquake will not be felt for quite some time."
Analysts are still assessing the damage and the effect on world markets. The delay in production in Taiwan's chip industry will have a
"one- to two-week impact on the global supply chain," said Mark Edelstone, an analyst with Morgan Stanley Dean Witter & Co. in
San Francisco.
Others said the damage is more severe. "Every day [Taiwan's] 28 fabs are out of operation, more than $40 million is lost," said Jim
Handy, an analyst at Dataquest Inc., San Jose.
Board shortage
The situation appears to be more dramatic in Taiwan's PC industry. There is now a major shortage of Taiwan-made printed-circuit
boards, which has sent local prices up 5%, said Raymond Chen, vice president of Asus Computer International Inc. Asus, Fremont,
Calif., is the U.S. subsidiary of Taipei-based Asustek Computer Inc., one of Taiwan's largest motherboard makers.
This is having a ripple effect for Asustek and other vendors in Taiwan's giant motherboard industry, which must procure raw PCBs
from suppliers on the island and elsewhere. "Everybody in Taiwan is fighting for PCBs," he said.
As a result, Asustek projects it will have a 10% to 15% shortfall in total board shipments in the fourth quarter. The company, which
makes 800,000 to 1 million boards per month, sells its products to distributors and OEMs, including HP.
Asustek and other major Taiwanese motherboard makers have yet to raise their prices, but are considering hikes of 5% or more in the
coming weeks, according to industry sources.
Local PC makers are in the same boat. For example, Taipei-based Mitac International Corp., which makes PCs on an OEM basis for
Compaq, last week said it will have a shortfall in sales and product shipments due to the quake.
Networking-equipment suppliers are also playing catch-up. For example, Accton Technology Corp., one of Taiwan's largest
network-equipment makers, lost about three days of production, said Jennifer Wu, product marketing manager for the company.
Hsinchu-based Accton makes network equipment, and builds products on an OEM basis for companies such as Cisco, Intel, Nortel,
and 3Com.
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