David Keene -- When I wrote last week’s news update on Japan, huge question marks were everywhere. What a difference a week makes. A bigger nuclear disaster was avoided, and we’re all looking ahead now, surveying the industry, planning for NAB, not watching the news hourly. I stand by my view that with a Japanese government with $1 trillion in reserves, with quite a few display and CE product surpluses going into 2011, with “just-in-time” manufacturing routinely resulting in plant closures in the best of times, and with an increasingly outsourced final assembly regime implemented by the big Japanese manufacturers, the events on the ground in Japan– as taxing as they are on the Japanese homeland– will not greatly impact America’s supply of the latest technology products from Japan. Fairly good news for us– even better news for the Japanese who need us buying product not wondering what’s going on in the factories and in the supply chain. Economics 101: perception is a huge part of any macro or micro equation.
It’s always difficult trying to avoid a Chamber of Commerce spin on things– while also trying to redirect some of the mass media focus on the worst-case scenarios. In this case it’s even harder, when we’re talking about a supply chain that when it’s humming along nicely is complex if not byzantine in its relentless globalization, and no one plant is indispensable.
The WTA (World Trade Organization) said yesterday that the “macroeconomic repercussions” of the Japanese disaster trifecta two weeks ago have not yet been felt strongly– and there’s not much to add to all the pundits yapping in the mass media. It’s the microeconomic analysis of our industry’s supply chain that is being offered by a variety of market analysts and data crunchers, that’s interesting.
While not exactly specific to our industry, tomorrow, Friday March 24th, The Journal of Commerce (JOC) will host a free webcast at 1 p.m. ET, to discuss the impact of the events in Japan on trade between the U.S. and Japan, as well as its impact on global supply chains in the automobile, electronics and agriculture industries. More on that at the end of this report.
Even as these analysts try to look into the microeconomic crystal ball, the more you talk to people working and traveling in the industry, the more things look closer to normal than you’d think. Aside from the areas close to the affected power plants in northeastern Japan, there are no travel restrictions issued by the WHO (World Health Organization) regarding general travel to Japan. Several industry analysts I’ve spoken to this week are planning trips to Japan to gather market data– as they do every spring. And interestingly, a major trade event– FINETECH Japan– will take place as scheduled from April 13 to 15 at Tokyo Big Sight, according to Sangmi Jong, FINETECH JAPAN Show manager. (FINETECH Japan) … organized by Reed Exhibitions, covers FDP R&D and manufacturing
Let’s look at a quick roundup of some of the big companies in the video, commercial AV, TV Broadcast, and Consumer Electronic market… and some recent reports by industry analysts.
After my story published last week, on the effects of the events in Japan, I heard from several of the big Japanese companies. They reassured about the safety of their employees, first and foremost. Then most of them commented that despite the events, most of their operations were going forward normally. It’s worth pausing to reflect on this. After all, we are talking about highly sophisticated manufacturing plants. Plants that in normal conditions start and stop production according to the now universal “just-in-time” manufacturing philosophy. This is the world we live in. Normal business cycles result in plant closures and layoffs. (I’ve toured factories in Japan, and just as while touring U.S.-based factories, on any given day, you’re likely to see huge assembly lines dark.) And not only are factory starts-and-stops the norm now, the growth of manufacturing in China means that Japan is now acting as a unique combination of R&D engine and silicon lab for new-gen processing power. But the path from R&D to the factory floor is a shorter one each year. It won’t take long to move production to where the supply chain is not only healthy– it may be a bit too healthy. What have most of us been talking about for years? Shortages of parts leading to upward pressure on prices? I don’t think so. The inexorable trend toward commoditization and category deflation has been the bane of our industry for year. Shrinking margins. Looking for a silver lining in all this, we may see some firming up of prices this year, a good thing for a healthy market. But I digress.
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NEC Display Solutions of America told me that after first confirming that all their employees, and employees’ families, were safe, they confirmed that “there is no reported damage or injuries to NEC Display’s operations in Tokyo and that events have no impact on NEC Display Solutions operations and supply. Our support and service to customers, and our supply infrastructure, is as strong as ever”
JVC Professional Products Company, said this Tuesday the 22nd, that some of the company’s offices in Japan suffered minor damage, but they were repaired quickly and have been back in operation since March 14. There was also damage to some sales and service offices in Sendai, Miyagi Prefecture, as well as warehouses operated for JVC Kenwood Group by third parties, which are currently being repaired.
JVC Kenwood Group established a response headquarters soon after the earthquake, and is continuing to confirm the safety of employee relatives whom they have been unable to contact. The company also donated 300 pieces of communication equipment – 200 land mobile radios and 100 license-free transceivers – that allow people to send and receive messages without relying on public infrastructure.
Accoding to JVC, “While the main production resources supplying JVC Professional seem essentially unaffected, there are still significant concerns. In Japan, the company is coping with projected rolling power blackouts, and transport vehicles are being used for emergency support in areas damaged by the tsunami. In addition, JVC is studying the situation of its numerous component suppliers. In the near term, JVC Professional expects to fulfill product demands at previously expected levels, with repair parts and technical support remaining consistent as well. Plus, many JVC Professional products use widely available, non-proprietary consumables, such as recording media and projector lamps. If there is an unexpected disruption in JVC supply distribution, most product owners will have alternative consumable supply options.”
JVC Professional will exhibit as planned at ISC West and the NAB Show next month in Las Vegas. In fact, none of the major Japanese manufacturing companies reported any change to NAB plans.
Late last week, Sony said it would re-start a plant in Kanuma, north of Tokyo, where it makes industrial adhesives and optical film, leaving 7 other plants and two research and development centers still suspended after the quake.
A Sony spokeswoman said the company was inspecting some facilities to see when production might be resumed, but was still not sure when this would be possible. One plant in Miyagi, making magnetic tape and Blu-ray disks was severely damaged by the tsunami.
Sony CEO Howard Stinger told CNN on March 20th that the events could end up boosting Japan’s economy. “They’ll have to spend the money on rebuilding and restructuring,” Stringer said from New York on CNN’s “Fareed Zakaria GPS” program. “So that might also generate some energy in the economy,” said Stringer.
Sony, Japan’s largest exporter of consumer electronics, and with 167,900 employees worldwide, is going to bear more damage from an event like this, simply because of their huge footprint in both Japan and internationally.
Sony was planning to resume partial operations at a plant that makes rechargeable batteries in Tochigi prefecture, northern Japan, on March 22, Hiroshi Okubo, a Tokyo-based spokesman for Sony, told Bloomberg News on the 20th. The plant would be Sony’s third to resume normal operations since the earthquake caused Sony to halt production at ten factories. Sony also told Bloomberg that it could restart a DVD-manufacturing plant in Ibaraki prefecture within a week. The Sony factory that makes magnetic tapes and Blu-ray discs suffered the most damage among the company’s facilities. The plant, located in Tagajo City, Miyagi, isn’t receiving any power and is hampered with rubble and mud, according to Bloomberg News.
But last Friday, U.S. Sony executives in New York were meeting with my NewBay Media colleagues in New York, discussing plans for NAB. The Sony Execs had not altered their new product introduction plans a bit. NAB plans, and Sony U.S. marketing plans in general were going forward as planned.
On Wednesday of last week, Sharp Corporation said that there are no extensive damages to their buildings or production facilities in Japan, including their plant located in Yaita-city, Tochigi Prefecture. Sharp’s LCD panel production facilities located in Sakai-city, Kameyama-city, Taki-cho, and Tenri-city are continuing normal operation, according to Sharp.
Of course, a major manufacturer will always put their best face forward. And indeed, any disruptions to supply chains are not going to show up immediately. And remember that Japan in 2010 accounted for more than 6 percent of the world's $86.3 billion in global production of large LCD panels (panels larger than 10 inches diagonal). Japan also accounts for about 14 percent of LCD TV panel production. (cont'd...)
And it’s important to note that Japan has many new-generation fabs, including the world's only 10th Generation LCD fab operated by Sharp. (As noted above, Sharp reports that that LCD plant is running as normal.) And Japan accounts for a large number of components uses in LCD panels and LCD-based products. These components include glass, CCF’s, LED’s, color filters, and polarizers.
What do the AV/display market analysts say about this rather complicated path, for 2011 production? Well, it’s complicated, and you have to remember that the analysts’ companies, cited below, cover a variety of industries. So it’s not always clear what hat they are wearing. A company like iSuppli (especially now after iSuppli’s acquition by IHS) does not just live in one world. They cover everything from the computer market to DRAM memory to “Automobile Infoftainment” to flat panels to the cell phone market.
According to a news report on March 22nd by DisplaySearch– that mentions in particular the flat panel display market:
“In the second week after the Japan earthquake, some additional impacts to the FPD supply chain are beginning to emerge. In the near term, some panel makers need to work with new material suppliers to keep their lines running. Longer term, there are some indications that key equipment production may be delayed.
NF3 (Nitrogen Trifluoride) gas is used in cleaning CVD (Chemical Vapor Deposition) chambers in the production of TFT LCD, semiconductors, and amorphous silicon thin film solar cells. The supply of NF3 was tight before the earthquake, as low prices had discouraged gas makers from expanding capacity. At the same time, growth in the display market as well as amorphous silicon-based thin film solar cell production had increased demand.
While several companies supply NF3 gas, most of the supply is from OCI Materials, Air Products, and two Japanese companies: Kanto Denka Kogyo, and Mitsui Chemicals. The two Japanese companies, along with others like Central Gas, account for approximately 30% of world NF3 supply. Kanto Denka Kogyo has a plant in Shibukawa, in northeast Japan, which has been impacted by the earthquake and unstable electricity, potentially causing disruptions to NF3 production. Reports from some panel makers indicate that the supply of NF3 is tight due to the earthquake and the unstable electric power supply in Japan.
ITO (Indium Tin Oxide) is the main type of transparent conductor, and is widely used in TFT LCDs and touch screens. The raw material for ITO deposition is the ITO target. The leading ITO target makers are JX Nikko, Mitsui, and SCP, followed by ULVAC and Heesung Metal. The two Japanese firms have more than a 70% share of the market. JX Nikko’s factory is located 80 Km from the Fukushima nuclear power plant, and is currently shut down. Mitsui has not been impacted by the earthquake. Panel makers generally have a month of ITO target inventory on hand, so depending on the supplier, some panel makers could begin to experience constraints.
Pigments are used in color filters. DIC, a Japanese supplier of organic pigments, has indicated that its production has been impacted, which could have an effect on the supply of green pigments for color filters.
Connectors used for the power and graphics signals in LCD modules made by Hirose and JAE may be in short supply due to the earthquake.
In most of these cases, panel makers are holding at least a few weeks of inventory, giving them some time to locate alternative sources. However, one area that does not allow stockpiling is manufacturing equipment, needed to expand existing capacity or build new fabs.
Exposure equipment for Gen 4 and smaller fabs is typically the step-and-repeat type (steppers), which is dominated by Nikon. The company makes steppers in its Miyagi facility, which was damaged. A statement on the company website announced that the facility is closed with no indication of when it will resume operations. Nikon was at full production capacity before the disaster and had a great deal of work in process. Thus, it seems highly likely that shipments for AMOLED and LTPS LCD fabs will be delayed. If so, the current tight supply would continue longer than initially forecast. Gen 5 and larger fabs use projection lens scanning exposure equipment, which may also experience some delays as there are numerous sub-assemblies that must be produced and put together to make the complete machine.
Doug Olenick, of NewBay Media’s TWICE, the magazine that covers the consumer electronics market (and publishes the CES Show Daily), wrote on the TWICE web site, on March 21st, citing reports from IHS iSuppli:
“The research firm IHS iSuppli is now reporting that the disasters in Japan have led to a 25 percent reduction in silicon wafers. Silicon wafers are the primary building block of a semiconductor. Other production halts have taken place in silicon wafers and semiconductors.
"Manufacturing operations have stopped at Shin-Etsu Chemical Co. Ltd.'s Shirakawa facility. MEMC Electronic Materials Inc. also stopped manufacturing at its Utsunomiya plant. Together, these two facilities account for 25 percent of the global supply of silicon wafer used to make semiconductors," the report stated.
The Shirakawa facility makes 300mm wafers used in semiconductors with high transistor counts such as flash memory and DRAM, IHS iSuppli said.
Shin-Etsu's Shirakawa plant makes 20 percent of the global silicon wafer supply. It has suffered earthquake damage to its facilities and equipment. The company said it will try and shift production to another plant, but it could not give a time frame for when this might go online.
MEMC's Utsonomiya plant, maker of 5 percent of the global supply of wafers, has suspended operations and been evacuated. The companies expects production delays in the near term, but has not given any further information.
In related news Mitsubishi Gas Chemical and Hitachi Kasei Polymer have stopped production in their factories that produce the raw material for printed circuit boards, effectively eliminating 70 percent of the world's supply. Each said production should restart within two weeks.
IHS iSuppli estimates there is a sufficient supply of printed circuit board raw material on hand to keep production of the finished products moving, unless production is halted for a longer than expected time.
According to IHS iSuppli Elpida Memory's factory in Yamagata has been damaged and production is being impacted by a lack of electricity.
Fujitsu wafer production is being slowed due to damage and shortages of electricity, gas and wafers putting the company three to four weeks behind its production schedule.
Going forward, I’ll be looking to my friends at iSuppli, and at DisplaySearch, for the latest on manufacturing news and trends for the AV, display, and pro video industry.
In the meantime, while not exactly specific to our industry, tomorrow, Friday March 24th, the Journal of Commerce (JOC) will host a free webcast at 1 p.m. ET, to discuss the impact of the events in Japan on trade between the U.S. and Japan, as well as its impact on global supply chains in the automobile, electronics and agriculture industries. To access the free, live webcast, register here:
click here to register
If you're unable to make the live time, this webcast will be available on-demand beginning March 29.