If you read Fred Hickey's article stocksite.com
(from my previous post) and then the article below his argument re: component stockpiling certainly gains credence.
techweb.com
Fair Use/etc...
Japanese Y2K Inertia Could Put Fabs As Risk
(05/24/99, 2:15 p.m. ET)
By Anthony Cataldo, EE Times
TOKYO - Could fab lines around the globe grind to a halt in six monthswhen the calendar flips over to 2000? That was the fear expressed byrepresentatives of Intel Corp. visiting Tokyo this past week to work on what they see as the weakest link for Y2K compliance in the semiconductor industry: Japan's materials and equipment companies.
Executives from the world's largest chip maker warned of a grave lack of hard data from government bodies here to back up Y2K compliance claims. Intel is worried that if the claims go unchecked, undetected bugs could shut down the materials pipeline needed to produce semiconductors, a scenario that would cause a ripple effect throughout the electronic-component and systems industries, Intel executives warned.
"I would say the biggest risk we face is in Japan," said Donald Rose, general manager of year-2000 projects for Intel (Santa Clara, Calif.). If the company's worst fears come true, "it would cause a serious disruption to the making of chips around the world, and I don't think we will be the only semiconductor maker that will be in that situation."
Rose admitted he has no hard evidence to predict disaster in the supply chain for critical parts and materials coming from Japan. Indeed, Intel has seen Japanese companies make great strides in addressing the millennium bug in recent weeks, he said. What's more, Intel believes there is still ample time to address any lingering problems.
However, the company has observed significant cases of foot-dragging in Japan on the Y2K issue from its own suppliers, leading them to suspect a more widespread problem involving the country's utilities and transportation infrastructure. (The Y2K bug occurs in code that uses a two-digit field to represent a year. Such programs may interpret the year 2000 as 1900, a mistake that could generate difficult-to-predict effects.)
Intel does not operate any chip plants in Japan. But like a vast majority of semiconductor companies in the world, it depends on a large number of Japanese suppliers for the materials needed to manufacture semiconductors. These include process chemicals, lead frames, wafers and packaging materials. In some cases, Japanese companies hold more than 50 percent market share for these materials.
In Intel's case, there are 100 "mission-critical" suppliers based in Japan, or about one-quarter of the company's total. A shutdown from any supplier that fits this category "can bring us to our knees," Rose said.
Aside from its own manufacturing capabilities, Intel is concerned about how an acute supply-chain breakdown could affect Japan's PC industry. Japanese PC sales account for about 8 percent of the world's total and contribute about $2 billion to Intel's revenue. And a significant number of PC makers are in Japan.
Late last year, Intel sent out Y2K surveys to its Japanese suppliers to gauge compliance procedures, followed by on-site audits of its suppliers, a process that lasted until early in the second quarter of this year. In contrast to much of the feedback it had gleaned from the surveys, the company discovered that two-thirds of its suppliers had an "extreme risk" to the Y2K bug.
"It was worse than any geographic region of the world," Rose said. "The single biggest finding on our suppliers in Japan was that they were in a terrible state. Most had not started a program and if they did it was totally inadequate. It was almost as if they were looking for reasons not to do anything."
Indeed, Japan was identified last year as one of the nations behind in its Y2K efforts, according to a study by market-research firm Gartner Group (Stamford, Conn.). In addition, analysts say software is not traditionally considered one of the strengths of the Japan-based computer industry.
"Japanese companies' weakness tends to be software," said Daniel Hutcheson, vice president of VLSI Research, a San Jose, Calif.-based research firm that covers the semiconductor equipment industry. He noted that on product-satisfaction surveys, semiconductor companies say equipment software is one of their biggest concerns.
Software faults could be devastating. "If capital equipment gets confused about what year it is," explained Hutchinson, in systems that mix gases like oxygen and silane, "a valve could be left open when the machine says it is closed and poisonous gas could leak, or the machine could close down with a batch of wafers in it worth thousands of dollars."
To be sure, Intel's suppliers have made a drastic turnaround in an extraordinarily short time, a fact that Intel's Rose said can be largely attributed to the company's auditing process. In February, Intel determined 69 percent of its Japanese suppliers were high-risk. Two months later, only 10 percent were considered high-risk while 67 percent were determined to be low-risk.
"These suppliers have an immense capacity to execute a program once there's a program to execute," Rose said.
But Intel doesn't consider the battle won. The basic question is this: If its suppliers believed they were doing a good job with Y2K when in fact they weren't, what are the chances these suppliers are getting false reports from the power companies or freight services needed to keep their factories humming? So far neither its suppliers nor Intel have been able to pry open the doors to get the answers.
"We've pretty much come to the conclusion that we can't get information." Rose said. "Japan is the only place in the world where we can't get it. I have no data to say it's at risk, but I have no data to say it's at low risk."
Intel isn't the only company having trouble penetrating Japan when it comes to Y2K. Earlier this year, the U.S. Department of Commerce tried to arrange a meeting with Japan's Ministry of International Trade and Industry (MITI) to distribute tools, provide case studies and distribute a CD on Y2K preparedness, only to be rebuffed in April.
Wanted: facts and data
"Out of 15 countries, Japan was the only one resistant to the idea," said Richard Hall, manager of corporate-government affairs at Intel. "MITI did not perceive it as necessary. If the rhetoric of assurances we're getting from MITI is as good as they say, then why can't we see some facts and data to support it?"
Over the next few weeks, more attempts will be made to open some doors. Intel was slated to meet with the foreign commerce service at the U.S. embassy in Tokyo on Friday, May 21, and has a scheduled parley with MITI and several semiconductor manufacturers here next week. Both the Japanese branches of the Semiconductor Industry Association and the American Electronics Association will join the dialogue. Separately, auditors from the U.S. State Department's Office of Inspector General are in town to assess Y2K compliance.
And the problem is by no means limited to the immediate concerns about Japan. "We're concerned about all our suppliers and we're carrying out on-site assessments worldwide," said Gary Kleinhopf, vice president of year-2000 initiative at Motorola Inc.'s Semiconductor Products Sector. "We believe that Japan got off to a slow start [on Y2K compliance work], but the question is, is it too late?"
Kleinhopf is a member of the so-called High Tech Consortium, a group of several semiconductor, computer and networking equipment companies that is assessing Y2K readiness among suppliers and creating a large database of supplier information for member companies. It expects to have its assessments completed by the end of June.
Once supplier assessments are finished, Motorola's plan is to have all its businesses Y2K-ready by the end of the third quarter, said Kleinhopf. More than 600 teams within the semiconductor operation alone have worked on the corporate Y2K effort for the past three years, he said.
For its part, Intel, which has 14 plants of its own in various parts of the world, has served as an adviser to utility companies, air traffic control centers and others, seeing at first-hand the special problems plaguing each. Almost all power companies were found prone to communications-system failures, and they may be particularly vulnerable because of the inability to shut down an entire power grid to conduct full-scale Y2K tests.
With telecom companies, Intel found they are behind on testing for bugs for connections made between carriers, including how software patches installed by one carrier might affect another carrier.
As for transportation, Intel has observed that air traffic control systems are in most need of updating, although Intel said air transportation is the one area where Japan is ahead of the curve in Y2K preparedness. Worldwide, however, it is of special concern because a typical microprocessor is routed through five countries and three different factories. "We found some programs that were world class and some that were terrible or nonexistent. All of them are critical to Intel," Rose said.
One air traffic control center in Asia, for example, couldn't get government approval and funding to meet Y2K compliance, so Intel's local representatives called on all of their government contacts until the situation was reversed.
At one U.S.-based utility company, which had gotten off to a late start and had few people to tackle the problem, Intel met with management, provided tools, training and a testing methodology.
But so far, the company has had no success engaging with utilities and other critical service providers in Japan. One potential trouble spot here is the government's customs service, which is highly automated. "The U.S. and Ireland's are also highly automated and required significant remediation," Rose said.
For Japan, the good news is that there is still time. "There's seven months left and a lot can be done," Rose said. "Y2K is not a difficult technical problem, it's a complex management problem."
Intel started its internal Y2K remediation program in 1997, and by the next year had allocated $250 million to update its systems, including manufacturing and IT. The company has so far spent $57 million of that sum, and expects to spend no more than $175 million total, Rose said.
Intel identified 120,000 instances of date-sensitive equipment, then narrowed down the list to 40,000 mission-critical instances that could immediately shut down a factory, cause equipment failure or otherwise degrade production efficiency. As of now, Intel is 99.9 percent finished with the remediation work. "It was a smaller effort than we expected," Rose said.
But unless Japan adopts a policy of full disclosure, demonstrates a plan to fix the Y2K problem and devises contingency plans, Intel can only wonder what fate will befall the PC industry when the clock strikes midnight on Dec. 31. "It's a matter of concern for us, the PC industry and the larger economic picture," Hall said. |
