March 16, 2011 / 11:20 AM / 6 years ago

Japan supply squeeze worries spread to telco gear

STOCKHOLM/HELSINKI (Reuters) - Top mobile telecom equipment makers joined automakers in warning of a damaging supply squeeze as the impact of Japan's devastating earthquake spreads, adding to fears in a sector hampered by shortages.

Japan, home to around a fifth of the world's semiconductor production, has seen factories making everything from chips to car parts closed following Friday's earthquake, threatening supplies to manufacturers across the globe.

Most are making contingency plans, scrambling to source key components elsewhere while working out how much inventory they have available to keep production going.

Ericsson, Alcatel-Lucent and chipmaker STMicroelectronics all warned of a likely impact on supplies on Wednesday, echoing fears raised in the auto industry, where the closure of major Japanese car and parts plants could affect U.S. carmakers in as little as two weeks.

Japan is a key supplier to the global autos and technology sectors, making prolonged disruption a threat to both.

Analysts have said if the supply chain were broken for even a few weeks, the impact could be felt in higher prices or shortages of gadgets such as Apple's iPad and other tablets, smartphones and computers for months to come.

"Pretty much everything is halted or mostly halted through April ... Even before the crisis the industry was near capacity. I would expect an impact to Q1 because of the remainder of March and also for Q2 because of all of April," Earl Lum, head of telecom gear and component research firm EJL Wireless, said.

The threat of disruption has already impacted prices for chips since even if damage to production facilities is limited, power and transport outages could result in significant shortages of electronic parts.

That would spell bad news for a telecom equipment-making sector already suffering shortages.

"It is possible that we have the technology sector equivalent of Lehman Brothers ahead of us and that the shock will eventually be widespread," Nordea analyst Sami Sarkamies said, adding that if only one part in a thousand was missing it would result in a product not being ready.

Rubicon Technology Inc, based in Franklin Park, Illinois, is seeing increased demand for materials like sapphire substrates from Japanese customers in the LED industry because of supply disruptions within the country.

Smartphone maker Research In Motion has exposure to Japanese suppliers and is checking the impact of the quake on its manufacturing.

In a small sign of stability in the chip sector, spot prices of NAND-type flash memory, critical in Apple's iPad and other mobile devices, dropped 3.8 percent on Wednesday after surging since the quake.

Toshiba, which supplies around a third of the world's NAND, was inspecting its equipment after the disaster caused a brief shutdown last week at its facility in Yokkaichi.

Germany's Infineon said that while there would be some supply bottlenecks, there would only be a temporary impact on the overall chip sector.

MEMORY GAP

Ericsson said it was too early to get an accurate picture of how Japanese enterprises were affected but that it did not expect the disaster to have a big impact on first-quarter sales. European chipmaker STMicro said it saw a risk to first and second quarter revenues but it stuck to its current outlook.

French telecoms equipment company Alcatel-Lucent depends on suppliers in Japan for components such as memory and said it would look for alternative sources if needed.

Nokia Siemens sources a small number of components from Japan and said it could not yet quantify any impact from the earthquake.

Lum at EJL Wireless said the disaster's effect on the sector would be felt for some time for many companies.

"With the nuclear issue still unclear, this won't be fixed anytime soon. I do not expect inventory to be more than 2-3 weeks in the supply chain," Lum said.

BLACKOUTS INTO APRIL

In Japan, electronics manufacturers warned production would be hobbled by further supply and distribution problems as companies struggle with power blackouts.

Canon said it would suspend production at one of its main plants in southern Japan, blaming parts supply and distribution problems, while Nikon said the suspension of its precision equipment plants in north Japan could eventually disrupt factories closer to Tokyo, which could run out of parts.

Additional reporting by Simon Johnson in Stockholm; Marie Mawad in Paris, Noel Randewich in San Francisco, Isabel Reynolds and Tim Kelly in Tokyo; Writing by Alexander Smith; Editing by Jane Merriman, Hans Peters and Bernard Orr

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