Triple Industry Hit Troubles Supply Chain: Global Semiconductor Report
It was all going so well at the beginning of March, says Future Horizons Chairman & CEO Malcolm Penn, when January’s WSTS results were released. The oil and North African issues were being taken in their stride. Then, less than two weeks later, the earthquake and tsunami disaster struck Japan and by the close of the month, the Gaddafi Libyan regime was under western international air strike siege.Given the fragility of industry’s confidence since the Lehman Brothers crisis, the industry has weathered these ‘incidents’ with remarkable sanguinity, with concerns focused purely on supply not demand-side issues. According to Future Horizons, this underlines what it has been saying all along: the 2010 recovery and 2011 outlook were both stronger than most people thought.
“The industry’s biggest problems in 2011 were always going to be supply not demand driven,” says Penn, “the situation in Japan has simply amplified and accelerated their coming.”
In this aspect, Japan’s disasters do have parallels with the Lehman Brothers collapse, Penn acknowledges, and its impact of worldwide finance, hoping that the current disruption to manufacturing worldwide will force a rethink of how the world manages production. In the meanwhile, Future Horizons believes that the repercussions will be manifested in four waves: the immediate; the near term; the medium term and the longer term.
For the immediate, some minor disruptions will occur due to logistics related issues but otherwise ‘business as usual’. There is sufficient inventory in the supply chain to keep the processes rolling, other than maybe the NAN Flash memory spot market where some price hikes are inevitable and unavoidable.
For the near-term, one or two months, supply shortages will be caused by the destruction of work in progress; anything being made at the time of the disaster would have been lost and unsalvageable.
In the medium, three to six months, term, further supply shortages will be caused by reduced production capacity, either due to factories destroyed, factories unable to restart for the lack of electricity supply issues or piece parts, from resins to wafers, ICs to displays.
The longer term next six to months will see supply chain constraints while damaged factories get repaired or replaced and new capacity comes on line.
The industry thus faces an extended period of supply chain uncertainty and a frantic order book rejigging by firms directly hit by factory disruptions, seeking to reschedule their orders with alternative suppliers.
This will not be as easy as it sounds. For a start, the pre-disaster in the supply chain was already maxed out, so even if a firm wanted to place an order elsewhere, there is little spare capacity to service those new requirements.
There are issues of qualification. For consumer products, changing suppliers at a whim might be de rigour, say Penn, but for other applications, this inevitably involves a qualification and testing process, often requiring some three months of life testing.
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