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Analysis & OutlookNatural Disaster Risk Case Study: 2011 Japan Earthquake & Tsunami affect onSemiconductor Industry & Reco...
Analysis & Outlookof the world’s semiconductor manufacturing equipment by revenue. 2011 earthquakehad a significant effect...
Analysis & OutlookIndustry News survey revealed earthquake halted operations at 27 semiconductor front-end fabs in the Toh...
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Natural Disaster Risk Case Study: 2011 Japan Earthquake & Tsunami affect on Semiconductor Industry & Recovery


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Japan earthquake and Tsunami affect on the Semiconductor Industry

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Natural Disaster Risk Case Study: 2011 Japan Earthquake & Tsunami affect on Semiconductor Industry & Recovery

  1. 1. Analysis & OutlookNatural Disaster Risk Case Study: 2011 Japan Earthquake & Tsunami affect onSemiconductor Industry & RecoveryOn March 11, 2011, 8.9magnitude earthquake hit the east coast of Japan that triggered a23 foot tsunami, followed by more than 50 aftershocks of 6magnitude and many cities,villages in prefectures of Fukushima, Miyagi, Aomori, Yamagata, Iwate and Akita weredestroyed. Thousands of people died, thousands were missing, massive damage tohomes & infrastructure and explosions at nuclear plants were the aftermath of theearthquake and tsunami. Northeast Japan is one of the Japan’s major manufacturinglocations for semiconductors and major semiconductor manufacturers’ like Toshiba has8-inch wafer fab in Iwate, Freescale has a 6-inch wafer fab in Sendai, RenesasElectronics has factories in Aomori, Hokkaido and Yamagata, Elpida Memorysbackend manufacturing facility in Akita, Shin-Etsu Handotai (SEH) has a plantFukushima Prefecture that produced about 22% of total silicon wafer demand in theworld and Fujitsus plants in Fukushima. Most of the manufacturing units in theearthquake zone were severely damaged and tsunami had submerged some of the units.There was also an explosion in the Fukushima Daiichi Nuclear Power Plant thatworsened things further and nuclear power plants across Japan were also shutdown dueto the earthquakes that led to severe power shortages both for the people and industry.Japan accounted for 20% of worldwide semiconductor market in revenue terms and anydisruptions would have significant affect on the global semiconductor industry.According to SEMI, the global supply chain association Japan contributes about 23% ofthe world’s semiconductor capacity and Japanese semiconductor material supplierscomprise approximately 55-60% of the total market, and companies produce about 35%Rajesh Prabhakar Analyst Bio @
  2. 2. Analysis & Outlookof the world’s semiconductor manufacturing equipment by revenue. 2011 earthquakehad a significant effect on the Japan semiconductor industry as the manufacturingfacilities within the earthquake zone were damaged both in terms of manufacturingequipment and buildings, infrastructure damage like roads, ports and electric powershortages due to shutting down of nuclear plants. Other fabs that are away from theearthquake zone were also affected by the electric power disruptions as power is criticalfor the facilities to run and shortage of raw material supplies like chemicals, wafers, etc.Overall there was a significant effect on the Japan semiconductor industry which hadseen significant fall in the semiconductor sales due to the earthquake and subsequenttsunami that had affected other industries like electronics, automobile, etc. ( Chart:Semiconductor Industry Association- Global Billings Report) Japan Semiconductor Sales (US$Bn) 2011 3.88 3.8 3.82 3.61 3.64 3.6 3.59 3.47 3.42 3.34 3.3 Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecPost Earthquake Recovery Japanese Semiconductor IndustryAs highlighted in the chart above there was fall in sales of semiconductors in Japan inthe months of April, May & June due to earthquake and the sales grew since July whenthe semiconductor industry started recovering from the earthquake related damage andpower shortages. Japanese companies are well prepared for the earthquakes and theyinclude this risk in their business strategy and have elaborate disaster recovery plansand they are the best prepared in terms of technology and infrastructure to face theworst earthquakes. This is proved again during the aftermath of the earthquake in 2011.Despite facing severe damages to the infrastructure, manufacturing units and sufferinghuman loss in thousands, Japanese semiconductor companies, employees,semiconductor equipment suppliers and government worked together and with in threemonths brought back the production levels to pre earthquake levels. In case of thesemiconductor industry there were few units in the earthquake zone that suffered severedamages which were expected to take up to six months to recover and start fullproduction, but the fabs that were away from the earthquake zone started production inone to two weeks. Both Renesas Electronics fab in Naka and Texas Instruments Mihofab were not expected to recover full production until the end of September accordingto IHS iSuppli.Fujitsu recovered its units quickly and all seven of the Fujitsu Group manufacturingfacilities that were damaged resumed operations at 100 percent of capacity by April 20thand two out of seven resumed by March 28th . Fujitsus disaster-response strategy whichit implemented in 2008 after an earthquake in Japan’s Iwate prefecture helped it inplanning recovery during the aftermath of the 2011 earthquake. Freescale announcedthat it would not open the fab that was damaged in the earthquake. A SemiconductorRajesh Prabhakar Analyst Bio @
  3. 3. Analysis & OutlookIndustry News survey revealed earthquake halted operations at 27 semiconductor front-end fabs in the Tohoku and Kanto regions and 24 had resumed operations by April 11.By June 2011, with the full restoration of the Shirakawa Plant where 20% of theworld’s raw 300mm wafers are produced, the restorations of all of the Shin-EtsuGroup’s affected production bases had been completed. MEMC, another leadingproducer of wafers, had resumed partial production of 300-mm silicon wafers at itsfacility in Utsunomiya by April and total production by June. Apart from the damagesto the factory buildings and manufacturing equipment, electric power disruptionscaused by the power plant closures were responsible for the majority of supply chaindisruptions as the chemical processing and fabs require secure, stable and continuouspower. Damaged facilities have been repaired; electrical power supply interruptionswere avoided for fabs as per formal requests from SEMI and others, the Japanesegovernment has excluded semiconductor fabs and chemical plants from the 15% powercuts planned.Most of the reports soon after the earthquake in March 2011 have predicted that therewill be shortages in the semiconductor industry as some of the big players like Toshiba,Fujitsu, Shin-Etsu, Renesas etc have manufacturing facilities in the earthquake zonethat were damaged and some of the component suppliers and wafer makersmanufacturing facilities were also damaged. There was also certain amount of panic inthe industry and to calm the situation some of the chipmakers announced that they arecapable of shifting production to alternative locations and positive announcements weremade stating that inventory particularly sufficient wafer inventory existed. But this wasnot necessary as Japan semiconductor manufacturers reviewed the situation instantlyand some of the manufacturers that are not near to the earthquake zone restartedproduction with in two weeks of earth quake. Some of the manufacturers were facingsupply chain related issues and electric power related issues which were sorted outeasily with government support and were able to restart certain amount of production.These manufacturers attained their pre earthquake level of production by April 2011.As for the manufacturers whose units were within the earthquake zone and damagedseverely started repairs and made sure production started slowly by April 2011. ByJune most of the fabs have been restored and all of the fabs except three were at 100%production capacity. Mitsubishi Gas Chemical electronic materials productionsubsidiary that manufactures the BT resin used in the majority of semiconductorpackaging also recovered to pre-quake levels in June. Renesas Electronics which wasthe most severely damaged fab resumed production on both the 200 mm and 300 mmwafer fabrication lines in June and said its supply capacity will return to pre-earthquakelevels in September. The Miho fab of Texas Instruments also resumed operations byJuly. With strong disaster recovery plans, support form the employees and equipmentsuppliers and government, Japanese semiconductor industry restored its manufacturingunits within a shorter time frame and made sure there were no major supply disruptionsin the semiconductor industry. In fact since July 2011 the manufacturing and sales ofthe Japanese semiconductor industry picked up and proved that the industry isresourceful, resilient and global. The slowdown in sales of semiconductors in Japan hasfallen in the later part of the year as people were not buying devices like phones,computers, and tablets as Japanese economy and people are still recovering from thedevastation caused by the earthquake and subsequent tsunami.Rajesh Prabhakar Analyst Bio @