Two Weeks After Japan Earthquake, IT Industry Faces Hurdles

Two weeks have passed since a magnitude 9.0 earthquake and subsequent tsunami rocked eastern Japan, and while a recovery among the country's technology manufacturers has begun, it could be several months before things start to normalize.

Many factories were closed immediately following the quake, and most have been gradually returning to production in the last week. A handful of plants were hit harder and could be offline for months.

Companies face a daunting task.

Japan's biggest earthquake ever recorded, and the tsunami it spawned, left more than 10,000 people dead and an even larger number missing; several nuclear power plants remain in emergency condition and continue to spew radioactive contamination to the environment; hundreds of thousands are homeless; and the economy is being forced to adapt to power failures and supply disruptions. The end of the disaster is still not in sight.

For IT companies, the loss of production at these plants could have widespread effects on the electronics industry.

Texas Instruments' plant in Miho, northeast of Tokyo, is one of the factories that was hard hit. The plant, which produced chips and DLP devices for projectors, suffered "substantial damage" and it won't be until May when partial production resumes. Full production is not due until mid-July, and that could be further delayed by power problems, the company said.

Toshiba estimates production at its mobile phone display factory in Saitama, north of Tokyo, will be stopped for a month because of damage sustained in the earthquake.

Further north in Miyagi prefecture, a number of factories near the quake-hit city of Sendai suffered high levels of damage.

A Sony plant responsible for magnetic tape and Blu-ray Discs was inundated with water when a tsunami washed through the town of Tagajyo and is one of six Sony plants currently idle. Two Nikon plants were severely damaged and won't be back online until at least the end of March. And Fujitsu's major chip plant in Aizu Wakamatsu is still closed with no estimate of when production will begin again.

But some of the potentially biggest disruptions could come from the closure of two plants run by Shin-Etsu Chemical. Although not a well-known name to consumers, the company is a major supplier of silicon wafers. One of the halted plants, its Shirakawa facility in Fukushima prefecture, is responsible for around 20 percent of the world's supply of such wafers, according to IHS iSuppli.

"The wafers made by this facility mainly are used in the manufacturing of memory devices, such as flash memory and DRAM," said Len Jelinek, an IHS iSuppli analyst, in a statement. "Because of this, the global supply of memory semiconductors will be impacted the most severely of any segment of the chip industry by the production stoppage."

The knock-on effects of the quake to the global supply chain are already being felt.

Sony suspended production of Bravia LCD televisions, digital cameras and other products at five factories far from the quake zone because it can't get raw materials and components. Suppliers are unable to deliver because of either quake and tsunami damage or because of disruptions to the distribution network.

Industries beyond consumer electronics are also likely to feel the effects of these problems.

The automobile industry is a big customer of chip companies and the products it buys are often custom-made.

"Products like microcontrollers and DSPs can't simply be swapped out for another chip, whether from the same vendor or another," said Tom Starnes, an embedded processor analyst at Objective Analysis in Austin, Texas. "The programs aren't easily transferable between processors, and even changing other chips like analog may introduce cost, quality, or reliability issues not originally anticipated."

The long-term effect on Japanese electronics manufacturers and the supply chain remains difficult to gauge. Several major companies have said they will delay the hiring of new workers, usually done on April 1, and some have adjusted or canceled dividend payments to shareholders. While a nascent recovery appears to be underway and some factories are coming back online, it will be weeks before the full extent of damage to the global IT supply chain becomes clearer.