IHS Technology recently shared a presentation with our customers that provided insights on the recent Kumamoto, Japan, earthquake—along with expectations on the impact of this disaster on the electronics supply chain. IHS extends its condolences to all those who lost loved ones, were injured, or suffered unimaginable devastation. Our analysis, to be sure, cannot begin to account for the sorrow and loss of the Japanese people in this region. However, as the electronics industry operates in a globally connected environment, major disasters have ripple effects that extend far beyond the local area that is directly impacted. It is vital, then, to understand and respond appropriately in these circumstances.
First, it is important to comprehend the main issue at play as to the earthquake and its impact.
- The earthquake caused operations to be suspended at key semiconductor production facilities located in Kyushu, and area also known as Silicon Island in Japan.
- The production plants that experienced damage include:
- Renesas Electronics’ Kawashiri plant
- Mitsubishi Electric’s Kumamoto plant
- Sony Semiconductor’s Kumamoto plant
- SUMCO's Kubara silicon wafer production facility
The figures below provide a visual perspective on the epicenter and size of the earthquake, and on the facilities that were damaged and taken out of production. Accounting for the time needed to wait for the ground to stop moving in order for proper inspections to be done and to assess the true extent of the damage, the next figure shows the timing and size of the 57 tremors and aftershocks in Kyushu associated with what in effect were two large earthquakes. (actually, on the same day there was a 6.2 and 6.0 magnitude earthquake. So it would be three major jolts if these are counted separately). There are been other earthquakes of lesser magnitude in various regions of Japan. However, 57 tremors of magnitude 4.0 or above have taken place in the immediate region on or near Kyushu. The good news from this figure is that it appears that things are stabilizing in the region, so workers can proceed to safely inspect the facilities.
Figure 1 – Map of Kyushu, Japan, and of the earthquake’s impact
Kumamoto Earthquake: Three major jolts–stabilizing seven days later
Figure 2 – Timeline of tremors associated with the earthquake in Kumamoto, Japan
In the presentation delivered by IHS Technology, the status of each facility as well as of the products and markets impacted is presented. Also, the industry most affected—automotive production (Toyota, specifically)—is analyzed. Out of this analysis, the impact from the Kumamoto earthquake can be summarized below:
- The Kumamoto earthquake is not comparable in magnitude to the Great East Japan earthquake of 2011, which triggered a major tsunami and nuclear-plant radiation exposure
- Impact from this recent event on the electronics and semiconductor supply chain is limited to a handful of companies and production facilities, unlike the wider effect of devastation caused by the 2011 disaster
- There is no ongoing impact to critical infrastructure and utilities
- There are no damaged buildings
- The primary cause of delay before normalization can occur is the need for inspections—which, however, cannot take place until the earth stops moving
Figure 3 shows the relative levels of damage from an earthquake and the approximate timelines needed for recovery. In this case, IHS expects that full recovery will take place in four to six weeks from the time of the initial earthquakes.
Figure 3 – Supply chain impact and recovery
For this most recent major earthquake in Japan, the key issues to understand are:
- Lessons learned from the 2011 Great East Japan Earthquake resulted in the creation of new business continuity plans:
- Likely benefits in recovery from this earthquake will be due to these plans
- Return-to-normal operations are typically provided for within one month
- Restructuring plans will be in place, to create redundant production
- Likely impact on the semiconductor supply chain:
- Implementation and enhancements to “Business Continuity Plans” will result in only a temporary and transient impact
- Possible near-term pricing volatility may occur, but nothing major is anticipated
- Demand for semiconductor components is currently low. Companies have weak demand and minimal long-term visibility
- Quick recovery is expected, with normal operations making up for lost production
Building on lessons learned from previous disasters, the key players in Japan are well prepared to recover quickly from this disaster and should be able to minimize the deleterious impact of the Kumamoto earthquake on the global electronics supply chain.
For those interested in the complete details of the IHS presentation, you can contact me directly via email at email@example.com.
Posted on 28 April 2016