U.S. firms gauging quake impact
Computer, electronics cos. face the most exposure
By Deborah Adamson, CBS MarketWatch
Last Update: 6:44 PM ET Sep 21, 1999
TAIPEI, Taiwan (CBS.MW) -- U.S. companies with operations or business relationships in Taiwan are scrambling to assess the economic impact of the Asian nation's 7.6-magnitude earthquake.
But when the dust clears, electronics and computer companies are ones facing the most risk of business disruption, according to economists and a trade group.
Taiwan makes 80 percent of the world's personal computer motherboards, provides two-thirds of wafer production and processing, holds 10 percent of global semiconductor capacity and 6 percent of the DRAM memory chip market, according to the Semiconductor Industry Association. Taiwan is the seventh-largest trading partner of the U.S. with annual trade of more than $85 billion, according to the U.S. Commerce Dept.
"Taiwan is a very large supplier to the computer industry," said Richard O'Brien, corporate economist at Hewlett-Packard (HP: news, msgs) in Palo Alto, Calif.
While companies don't do a great deal of direct manufacturing there, they hire Taiwanese companies to make computers and they also purchase related peripherals. Taiwan is a source for products such as semiconductor components, liquid crystal displays for laptops, PCs, among others.
Several major Taiwanese foundries that make wafers for semiconductor companies seem to be sound structurally even if they have no power, according to a report by Analyst Charles Glavin of CS First Boston. The danger now is the extent of the damage to the supporting infrastructure, such as electricity, chemicals and transportation. He estimates that 20 to 25 percent of wafers in production are at risk, or two weeks' worth of inventory. If power is restored soon, the damage should be minimal.
Glavin cites Galileo Technology (GALT: news, msgs) and C-Cube Microsystems (CUBE: news, msgs) as having "large exposure" to the disaster in Taiwan because they have most or all of their foundry production there. Galileo dropped 3 9/16, or 11 percent, to 29 5/16 while C-Cube dipped 1 25/32, or 4.4 percent, to 39. Companies with "fair" exposure are PMC-Sierra (PMCS: news, msgs), which declined 3 1/8, or 3 percent, to 99 7/8, and Broadcom (BRCM: news, msgs), which dropped 4, or 3.7 percent, to 105 5/16.
Merrill Lynch's Joseph Osha said MMC Networks (MMCN: news, msgs), SanDisk (SNDK: news, msgs) and Xilinx (XLNX: news, msgs) source between 50 to 60 percent of their wafers from Taiwan. Altera's (ALTR: news, msgs) exposure is much higher, at 85 percent, he estimated. MMC closed down 1 to 31 1/8, SanDisk dipped 4 1/2 to 84 1/4, Xilinx dropped 1 11/16 to 67 1/4 and Altera decreased by 2 3/4 to 50 1/8.
At the moment, the concern of companies is the safety of their employees and partners in Taiwan.
Hewlett-Packard has about 600 workers there, said Ed Young, the company's vice president of computer products. The computer and printer company doesn't have major manufacturing operations in Taiwan but it does have a big procurement office and partners with many Taiwanese companies to develop products.
Young fears that business impact to H-P could be "pretty significant."
"We're trying to assemble information right now," he said. At least, Young said, the computer hardware company could rely on its backup plans put together for Y2K problem during this crisis.
The quake's epicenter is in an agricultural area 90 miles south of Taipei, not in a major business center. On Monday, the 7.6-magnitude temblor rocked the tiny nation, one of the worst quakes to hit it in a decade. There are reports of 1,674 dead, 3,900 people injured, some 2,600 trapped and 219 people missing.
O'Brien said the key to assessing any economic impact on U.S. companies is how badly the Taiwanese businesses have been disrupted. With the emphasis on just-in-time manufacturing, where products are put together as quickly as orders are received to prevent a big backlog of inventory, any disruption in the supply system could be devastating.
Jack Kyser, chief economist of the Economic Development Corp. in Los Angeles, said the damage to high-tech companies could be mitigated by how quickly they can shift to other suppliers, such as those in China. Many big companies get their supplies from all over the world.
A spokesman for Santa Clara-based Intel Corp. (INTC: news, msgs) said the company does not manufacture in Taiwan. Rather, it employs 50 to 100 people in a sales and supplies office there. Intel believes the quake will only have a minimal impact on its microprocessors business, since it has suppliers worldwide.
However, the chip maker still is assessing the situation. The biggest problem right now is lack of power. Beyond that, "it's too early to tell," the spokesman said.
Dell Computer Corp. (DELL: news, msgs) said it has assembled a business team to assess the damage of the Taiwan quake and its impact on the company. Dell outsources the manufacturing of everything from notebook computers to individual chips to Taiwanese companies, according to a spokesman of the Round Rock, Tex.-based computer maker.
IBM Corp. said it buys from a lot of vendors in Taiwan, but it's too soon to say what impact the quake will have on business. The Armonk, N.Y. computer manufacturer (IBM: news, msgs) employs 1,200 in Taiwan.
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