Japan supply squeeze worries spread to telco gear

Reuters News
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Posted: Mar 21, 2011 5:22 PM
Japan supply squeeze worries spread to telco gear

By Niklas Pollard and Tarmo Virki

STOCKHOLM/HELSINKI (Reuters) - Top mobile telecom equipment makers joined automakers in warning of a damaging supply squeeze as the impact of Japan's devastating earthquake spreads, adding to fears for a sector hampered by shortages.

Japan, home to around a fifth of the world's semiconductor production, has seen factories producing everything from chips to car parts closed following Friday's earthquake, threatening supplies to manufacturers across the globe.

Most are making contingency plans, scrambling to source key components elsewhere while working out how much inventory they have available to keep production going and for how long.

Ericsson, Alcatel-Lucent and chipmaker STMicroelectronics

all warned of a likely impact on supplies Wednesday, echoing fears raised in the auto industry, where the closure of major Japanese car and parts plants could affect U.S. carmakers in as little as two weeks.

Japan is a key supplier to the global autos and technology sectors, making prolonged disruption a threat to both.

Analysts have said if the supply chain were broken for even a few weeks, the impact could be felt in higher prices or shortages of gadgets such as Apple's iPad and other tablets, smartphones and computers for months to come.

"Pretty much everything is halted or mostly halted through April ... Even before the crisis the industry was near capacity. I would expect an impact to Q1 because of the remainder of March and also for Q2 because of all of April," Earl Lum, head of telecom gear and component research firm EJL Wireless, said.

The threat of disruption is already having an impact on prices for chips and even if damage to electronic production facilities was limited, power and transport disruption could result in significant shortages of electronic parts, leading to big price hikes, research firm IHS iSuppli has warned.

That would spell bad news for a telecom equipment-making sector already suffering shortages.

However Germany's Infineon said that while there would be some supply bottlenecks, there would only be a temporary impact on the overall chip sector.

MEMORY GAP

Ericsson said while it was too early to get an accurate picture of how Japanese enterprises were affected, it did not expect the disaster to have a material impact on first-quarter sales. However, European chipmaker STMicro said it saw a risk to first and second quarter revenues.

Ericsson made no mention of Sony Ericsson, its joint venture with Japanese group Sony, which makes mobile handsets and is heavily reliant on Japan for parts.

French telecoms equipment company Alcatel-Lucent does not manufacture in Japan but depends on suppliers there for components such as memory and was reviewing contingency plans. It, like others, said it would look for alternative sources if needed, although it had enough stock for now.

Nokia Siemens said it could not yet quantify any impact from the earthquake, although it only sourced a small number of components from Japan.

Lum at EJL Wireless said the effect would be felt for some time to come across the sector.

"The supply of critical radio components...has been disrupted. We expect that supply will remain restricted through April and this will impact manufacturers such as Alcatel-Lucent, Nokia Siemens, Ericsson, Huawei and ZTE (which are) shipping wireless infrastructure equipment."

Some are warning there is not sufficient inventory for the gap to be filled quickly if the disruption persists.

"With the nuclear issue still unclear, this won't be fixed anytime soon. I do not expect inventory to be more than 2-3 weeks in the supply chain," Lum said.

BLACKOUTS INTO APRIL

In Japan, electronics manufacturers warned production would be hobbled by further supply and distribution problems as companies struggle with power blackouts following the quake, which are expected to persist into April.

Canon said it would suspend production at one of its main plants in Oita, southern Japan, blaming problems with parts supply and distribution, while Nikon said the suspension of its precision equipment plants in north Japan could eventually disrupt production at factories closer to the capital, which could run out of parts.

"News that the earthquake has disrupted the supply chain for production bases in Kyushu, a long way from the Tohoku region, will probably come as a bit of a surprise, but this shows the potential for similar disruption at other companies," Citigroup analyst Masahiro Shibano said in a note.

(Additional reporting by Simon Johnson in STOCKHOLM; Marie Mawad in Paris, Isabel Reynolds and Tim Kelly in TOKYO; Writing by Alexander Smith; Editing by Jane Merriman and Andrew Callus)