The effect of the major Taiwan earthquake of September 21, both on the international PC industry and TaiwanÆs domestic electronics industry, is proving to be considerably less than early forecasts suggested. Despite widespread loss of life and devastation of property near the epicenter of the quake, most of the electronics industry is far enough away to have avoided major damage to buildings or plant.
While the speed of the recovery of TaiwanÆs electronic components makers, and particularly its major semiconductor foundries, has taken most analysts by surprise, all those approached by ComputerWire felt the international media had also blown the potential downside out of all proportion.
Said Douglas Lee, a Hong Kong-based regional technology analyst with Goldman Sachs: Reports of the death of the Taiwan semiconductor industry were greatly exaggerated. On a trip to the US shortly after the earthquake, Lee was amazed to find a front page story in a major newspaper, written by a respected financial journalist, predicting it could be six months before TaiwanÆs chip industry recovered. I just couldnÆt believe it, he said. It was so out of line with the facts.
However he admits to being taken aback himself by the speed of the recovery, with most chip fabs back in action four days after the earthquake and with full recalibration of equipment completed and full production restored within 10 days. He feels the surge in the spot market price for DRAMs after the earthquake was driven by expectations recovery would take considerably longer than it had. Whether these expectations were fueled by wishful thinking by Korean and Japanese makers, or just by bad reporting in the media, they were wrong, he said.
Connor Liu, Taiwan-based semiconductor industry analyst with Solomon Smith Barney, agreed and pointed out the DRAM spot price has recently declined sharply. Japanese and Korean DRAM producers thought Taiwan IC fabs would take a longer time to recover from the earthquake, but the recovery was much faster than they thought. Although the DRAM spot price passed the $20 mark on September 23, just after the earthquake, it recently dropped to $10, he said.
However both Liu and Lee said there have been shortages of important Taiwan-made components which has resulted in a slowdown in PC shipments. And this has contributed just as much to the drop in the DRAM price as the return to full production of Taiwan manufacturers said Liu.
The components which have been in short supply are super I/O, flash memory, chipsets and graphic ICÆs, according to Liu who said the situation is quickly improving. Lee pointed out that in July and August, well before the earthquake, there was a very tight supply of these components and while the earthquake had an impact there would have been a shortage in any case.
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Overall the impact will be measurable but it is not going to be significant, he said. PC and cellphone manufacturers are encountering one-time problems with their Taiwanese suppliers, but on a case-by-case basis it only amounts to a short-term 5% to 10% shortfall per manufacturer.
Liu said he did not think prices of PCs would be driven up worldwide although Taiwan is the major international supplier of some of the components. I don’t think the shortage of some components will drive up the PC price, as the major costs are CPU, DRAM and hard disk drive. CPU prices continue to fall and the DRAM price has fallen. Even though some prices have temporarily gone up 15% to 20%, they are of components which only account for a fraction of the cost of a PC.
The major losers appear to be AsiaÆs myriad of white box computer assemblers. Little shops in huge computer arcades in cities across the continent from Beijing to Bangkok, Hong Kong to Manila, which put together no-brand, made-to-order computers from largely Taiwan made components. These third-tier makers, who jointly often account for the largest segment of the PC market in their respective countries, have to buy their components in small quantities at the spot market prices. From undercutting name-brand machines they suddenly found their products were on a par price-wise or even more expensive, but without warranties and back-up service.
Major manufacturers have long-term contracts with component and part suppliers including chip makers, and the fluctuations in spot market prices have had little effect on them, Lee points out. Apart from some of the little stall-holders who have been put out of business we will all look back on this and see it just as a big hiccup, says Lee. Liu agrees and says he cannot see any long-term impact either on TaiwanÆs semiconductor or broader electronics industry or on international markets and prices.
