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TrendForce: The Latest Development of Effects on Global Supply Chain Caused by Japan Earthquake

16 March 2011 LED


Japan Earthquake and Electrical Brownouts to Affect Silicon Wafer Supply and Global DRAM Capacity

Based on the survey conducted by DRAMeXchange, a research division of TrendForce, due to Japan earthquake, Fukushima No. 1 power generator was shut down and caused a radiation leak, which led to an electric power cut in northeast Japan. Since March 14th, Japan started to enforce electrical brownouts among areas with less damage, and made electrical usage concerning transportation and daily life the first priority. There is still no definite time on when electricity will be restored in Miyagi and Fukushima, where the earthquake caused serious damage.

As for the DRAM supply chain, Shin-Etsu Handotai's Shirakawa plant in Fukushima and SUMCO’s Yonezawa plant in Yamagata, which are both located in northeast Japan, mainly manufacture silicon wafer. The earthquake caused serious damage to the Shirakawa plant, the core of Shin-Etsu’s silicon wafer capacity, depends on Fukushima nuclear power plant for its major electricity usage.However, the earthquake did not cause as much damage to SUMCO, since SUMCO’s core of silicon wafer capacity is in Kyushu. Silicon wafer’s manufacturing process requires long and stable electricity supply; no amount of power cut is allowed. Furthermore, electrical brownouts in northeast Japan could last for several months. Considering the fact that transportation facilities are damaged and Shin-Etsu Handotai and SUMCO own over 50% market share, it is believed that the DRAM material supply chain will be impacted.

As for Japanese manufacturer Elpida, the earthquake was merely magnitude 2 at its location. Except for its need to relocate immersion scanners, which Elpida still had in stock, the earthquake’s effects on Elpida was limited. The major supply of Samsung’s silicon wafer demand are from SUMCO’s Kyushu plant and Samsung itself, so Samsung was not affected much by the earthquake, either. Hynix’s main supply of silicon wafer is from Shin-Etsu, so it is currently looking for other suppliers. As for Taiwanese manufacturers, Powerchip and Rexchip still have some stocks left, and will keep track of the supply chain of Shin-Etsu. Nanya Technology and Inotera Memories’s main silicon wafer supply is from Formosa Sumco Technology, so there is no effect on its production. Winbond has many different suppliers, so no supply shortage is expected.

Toshiba states that besides Shin-Etsu, they still have other suppliers, and the wafer usage for NANA Flash plants will be made the first priority. Hence, temporarily, no effect on production is expected. Hynix’s main supply of silicon wafer is from Shin-Etsu and SUMCO, so the production will not be affected. Samsung states Shin-Etsu is not their major supplier, so they will not be affected, either.


Recovery Process of Infrastructure in Japan to Affect Resurgence of Upstream Panel Supply Chain

Based on a survey conducted by WitsView, a research division of TrendForce, Japan earthquake and the tsunami it caused mostly affected northeast area and Kanto area of Japan. As for Kansai area, where most large-size panel production lines are located, the effects were limited. The smaller capacities in northeast area such as color filter, after a short examination and maintenance, have resumed its production.

According to WitsView’s observation, the recovery process of infrastructure is the key as far as resurgence of panel supply chain goes. Currently, electrical brownouts are being enforced in Kanto and Japan’s northeast area, and it is expected to continue until the end of April, which will impact the capacity of production lines and supply shortage in the short term. Therefore, manufacturers need to rearrange resource distribution in capacity. Among main panel material manufacturers, silicon wafer suppliers in driver IC industry Shin-Etsu Handotai and SUMCO have been seriously affected by the earthquake. Although major driver IC manufacturers claim that there will be no significant influence in the short term, but there will likely be a shortage in silicon wafer supply in near future. The actual effects on wafer foundry and driver IC industry are still yet to be estimated. On the other hand, regarding supply of chemical materials which only account a small amount for total cost such as anisotropic conductive film and photoresist target, even though panel manufacturers still have a stock of them, due to the fact Japanese suppliers have a higher market share concerning these materials, the ongoing development still depends on the recovery process of local production lines and transportation facilities.

The panel demand remains low in the first quarter and there has not been any increase in sight. The inventory pressure concerning panel and materials is expected to intensify as time goes on. However, due to the sudden strike of earthquake and the damage it caused, it may increase demand in downstream industry, which will possibly relent the inventory pressure in the short term. But WitsView believes the major concern is still about the recovery of upstream supply chain, which will significantly influence panel supply in the second quarter.


The Effects Caused by Japan Earthquake on LED Industry

Asia is the production core of the global LED industry. Based on LEDinside’s survey, Japan ranked No. 1 in LED package revenue by region, accounting for 29% in market share.

In the long history of the LED industry in Japan, the invention of blue LED by Shuji Nakamura was the turning point, which contributed to a rapid development of LED industry in Japan. Japan LED industry has been in an advantageous position due to its intergrated supply chain. Besides several major LED manufacturers, up, mid, downstream material manufacturers in Japan play a critical role in the global supply chain, providing materials such as phosphor, silicone lens and sapphire ingot. Major LED manufacturers are mostly located in Kansai area of Japan and material manufacturers are mostly in Kanto area.

According to LEDinside’s observation, the earthquake generally has not done much damage to LED industry. As for some manufacturers located in Kanto area, the situation was optimistic – plant and equipment remained unharmed. Due to the shutdown of Fukushima’s power generator and transport difficulties caused by tsunami in certain areas, there has been short supply regarding some components and materials.

LED Manufacturers

Major LED manufacturers in Japan such as Nichia and Toyoda Gosei are both located in Kansai area, so the earthquake did not do much damage to them. Some of Showa Denko’s production lines are in Chiba, where electrical brownouts are currently enforced. Therefore, it will inevitably affect Showa Denko’s capacity. As for LED packaging manufacturer Citizen, because some of its production lines are in Fukushima, the damage is yet to be fully estimated.

LED Material Manufacturers

As for sapphire substrate manufacturers, Kyocera and Namiki account for 25% of market share. However, Japanese sapphire substrate manufacturers mostly supply for domestic demand. Even though some of Namiki’s production lines are in Aomori, according to LEDinside’s survey, no damage has been done to plants, but electrical brownouts have affected its production lines and may cause short supply. It is too early to be certain whether it will drive LED manufacturers in Japan to seek for foreign sapphire substrate supply. As for SUMITOMO ELECTRIC, major supplier of GaAs substrate primarily used for manufacturing AlGanP LED, the production line has not been affected.

SUMITOMO CHEMICAL and Shin-Etsu Chemical, major suppliers of MO Source in Japan, exclusively supply for Japanese market, so it is estimated that it will not affect foreign LED manufacturers. Nonetheless, both of them have some production lines in Kanto area, so the future development of production is worth observing.

As for wafer carrier, an important consumption material used with MOCVD equipment, due to its high technical threshold, there are not many suppliers. Plus, manufacturers have been expanding the amount of MOCVD equipment, so there has already been a short supply regarding wafer carrier prior to the earthquake. Fortunately, the major wafer carrier supplier in Japan Toyo Tanso’s plant, which is far from the epicenter, so not much damage has been reported.

The global demand of silicone lens is primarily supplied by Shin-Etsu Chemical and Dow Corning. The former’s plant is located in Gunma, where transportation facilities have been damaged and electricity is in shortage, so many packaging manufacturers state that there has been shortage in silicone lens supply.

Nichia and Mitsubishi Chemical are the major suppliers of phosphors in Japan. The former produces YAG, and the latter produces red and green phosphors, which accounts for a large market share in LED-backlit TV market. Mitsubishi’s Odawara plant is not close to the affected areas, but due to electrical brownouts and difficculty in transportation, some packaging manufacturers claim that the phosphor supply is currently in a slight shortage.


Poly Silicon Contract Prices under Limited impact while Spot Prices Surge

According to EnergyTrend, the earthquake in Japan has relatively slight impact on the global solar industry compared to that on other industries. The supply chain sectors influenced are mainly mono silicon and poly silicon suppliers.

On the other hand, major Japanese solar cell manufacturers such as Sharp, Kyocera, Mitsubishi, and Sanyo are located in the Osaka, Shiga, Nara and Kyoto which are distant from the afflicted area and thus unaffected. Currently, the supply chain operation remains stable, experiencing no impact on their power supply and production facilities.

As far as supply of poly silicon is concerned, M.Setek and Tokuyama are two main affected suppliers. M.Setek’s factory is situated right in the heavily afflicted area and is forced to halt its poly silicon production that accounts for annual production capacity of 3,000 tons.

According to EnergyTrend’s estimation, global supply of poly silicon will reach 220,000 to 240,000 tons in 2011 and the combination both M.Setek and Tokuyama’s capacity takes up approximately 5% of total global supply. EnergyTrend believes that it will not cause dramatic changes to solar contract prices since contracts for 2011 were already signed. However, due to currently low inventory level, worldwide spot prices of poly silicon will surge.

In addition, nuclear crisis in Fukushima continues to appear unsettling. If radiation leakage widens to Kanzai of Japan where many solar cell manufacturers are located, global supply of solar cells may be affected. Faced with power shortage, Japanese government may see solar power system as a possible solution to temporary energy relief. However, since Japanese government is already carrying a heavy financial burden, its ability to take on more debt to support extensive PV installation is to be evaluated more carefully. Therefore, it is still unclear whether the increase in domestic demand will continue.

Supply of Lithium Battery Upstream Materials to Recover through Order Transferring¬- Battery Cell Makers on Caution about Material Supply Shortage

According to EnergyTrend, Japanese cylindrical battery cell may be affected due to tight domestic supply of raw materials in the aftermath of the quake. Korean battery cell makers are possibly the foremost beneficiaries to see prices rise as a result. Taiwanese suppliers, on the other hand, can still benefit from temporary supply shortage of cathode material and protection IC despite their absence in global NB battery cell supply chain. It is believed that the most affected sector in the battery supply chain is the upstream materials including cathode material and protection IC. The most disturbing concern is that Hitachi’s cathode production capacity accounts for 30% of the total market share, which is significantly more than the sum of JFE and Nippon. In other words, if the combined production capacity of these three companies were jeopardized, supply shortage may be substantial affecting the entire battery supply chain. Sony’s polymer cell production is in Singapore and China which is unaffected. However, while its pack assembly lines in Japan can be transferred to its plant in Xuxin, China, Sony’s cylindrical battery cell production in Japan is most affected. The pressing cylindrical battery cell inventory level may pose a serious problem in supply. Sanyo, on the other hand, produces battery cells for NB in Osaka, and polymer battery cells in Beijing, China. Though Sanyo has sufficient inventory on hand, the market may show tight supply of cylindrical battery cells due to shortage of raw material.

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