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To: Proud_Infidel who wrote (32569)	9/22/1999 11:33:00 PM
From: cluka	Respond to of 70976

September 23, 1999 Earthquake Aftermath Could Idle Taiwan's Chip Industry for Weeks By MATT FORNEY and CRAIG S. SMITH Staff Reporters of THE WALL STREET JOURNAL TAIPEI, Taiwan -- The computer-chip industry here remained idled Wednesday, and it's not clear when production will start again after this week's earthquake cut power to much of the island. The stoppage, which some Taiwan chip executives say could last for weeks, reverberated through the global-information-technology industry, which depends on Taiwan's factories for many of the tiny integrated circuits that make the world's computerized appliances run. Computer-chip prices soared, and analysts rushed to assess the potential damage to the industry as it enters its busiest season. "This will have a chain effect on the entire industry," said F.C. Tseng, president of Taiwan Semiconductor Manufacturing Co., the world's largest dedicated chip foundry. A World Away The bottleneck recalls again the vulnerability of companies to unforeseen events a world away in the global economy. In 1993, chip prices spiked after a fire in an obscure Japanese factory that supplied most of the glue used to stick semiconductors together. This time, the problem rests with two electric-power substations damaged in Tuesday's earthquake. The high-voltage substations in central Taiwan transfer electricity from power plants in the south to the area in the north where the island's chip makers are based. While much of the island focused on the search for survivors, chip-industry executives pushed state power officials to find ways to bypass the substations and restore full electricity to their plants. Officials at Taiwan's Hsinchu Science Park, where 25 chip factories produce 90% of the island's semiconductors, said the power company wouldn't know until Friday when that could be done. In the U.S. Wednesday, TSMC issued a statement saying it had secured partial power for its plants, enough to begin an assessment of its losses. It said additional power may be delivered when two nuclear power plants on the north end of the island are cleared to restart. Out of Alignment Even with full power, the chip makers will likely have to recalibrate their sensitive machines -- a process that could take weeks to complete. The machines were most certainly knocked out of alignment by the vibrations of the quake. Other damage, such as breaches in air-filtration systems, could cause longer delays. "It will probably be two to three weeks or even longer before production resumes," said Jason Chen, Taiwan head of Kendin Communications, a Sunnyvale, Calif., company that designs routers and switches for the telecommunications industry. The multibillion-dollar computer-chip sector is the crown jewel in an electronics industry that makes up a third of Taiwan's exports, which totaled around $111 billion in 1998. Merrill Lynch estimates the industry's loss from damaged inventory and lost production will reach $150 million even if full power is restored Thursday. That figure will climb with each day the factories sit idle beyond then. "It's really anyone's guess as to how much this will end up costing," said Peter Kurz, Merrill Lynch's chief in Taiwan. The impact is likely to be felt world-wide. The power outage in the science park affects every manufacturer that makes products with integrated circuits, which are used in everything from cars to cellular telephones. An Estimated 5% Drop Davina Yeo, a computer analyst with research firm IDG in Singapore, said the earthquake interrupted the supply of four major components to the personal computer industry: dynamic random access memory chips, or DRAMs; graphics cards; computer peripherals, such as input-output controllers; and chip sets or their accompanying motherboards. She estimates that PC sales in Asia alone could drop as much as 5% in the fourth quarter because of the supply interruption. Taiwan supplies more than 10% of the world's DRAMs, the chips that hold much of the software running on a computer, and 30% of the world's chip sets and motherboards, which form the basic platform of a computer. PC makers typically carry little inventory of the expensive parts, which were already in short supply before the earthquake. The companies hit the hardest could be so-called fabless chip makers, which design various types of semiconductors but rely on Taiwan companies to make them. For example, engineers from Kendin Communications design chips for companies like networking giant Accton Technologies Inc., which makes the routers and switches that direct electronic-mail and telephone traffic. Kendin then contracts with factories in Hsinchu to produce those chips. With the park idled, Kendin's inventory of chips will last less than two weeks, said Kendin's Mr. Chen. If the production shutdown is prolonged, Accton and other companies could find alternatives to Taiwan suppliers, and that could hurt TSMC and Taiwan's UMC Group, which together provide nearly half of the world's supply of fabless companies' chips.