On March 11, 2011, a massive 8.9 magnitude earthquake and tsunami hit northeast Japan, severely damaging key semiconductor manufacturing facilities. This disrupted nearly 20% of the global semiconductor supply. However, Japanese semiconductor companies had strong disaster recovery plans and worked quickly to restore production. Most facilities recovered pre-earthquake production levels within 3 months through coordinated efforts between industry and government. By focusing repairs on critical infrastructure like power systems first, the Japanese semiconductor industry was able to avoid major long-term supply disruptions despite the extensive damage from the natural disasters.

1. Analysis & Outlook
Natural Disaster Risk Case Study: 2011 Japan Earthquake & Tsunami affect on
Semiconductor Industry & Recovery
On March 11, 2011, 8.9magnitude earthquake hit the east coast of Japan that triggered a
23 foot tsunami, followed by more than 50 aftershocks of 6magnitude and many cities,
villages in prefectures of Fukushima, Miyagi, Aomori, Yamagata, Iwate and Akita were
destroyed. Thousands of people died, thousands were missing, massive damage to
homes & infrastructure and explosions at nuclear plants were the aftermath of the
earthquake and tsunami. Northeast Japan is one of the Japan’s major manufacturing
locations for semiconductors and major semiconductor manufacturers’ like Toshiba has
8-inch wafer fab in Iwate, Freescale has a 6-inch wafer fab in Sendai, Renesas
Electronics has factories in Aomori, Hokkaido and Yamagata, Elpida Memory's
backend manufacturing facility in Akita, Shin-Etsu Handotai (SEH) has a plant
Fukushima Prefecture that produced about 22% of total silicon wafer demand in the
world and Fujitsu's plants in Fukushima. Most of the manufacturing units in the
earthquake zone were severely damaged and tsunami had submerged some of the units.
There was also an explosion in the Fukushima Daiichi Nuclear Power Plant that
worsened things further and nuclear power plants across Japan were also shutdown due
to 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 any
disruptions would have significant affect on the global semiconductor industry.
According to SEMI, the global supply chain association Japan contributes about 23% of
the world’s semiconductor capacity and Japanese semiconductor material suppliers
comprise approximately 55-60% of the total market, and companies produce about 35%
Rajesh Prabhakar Analyst Bio @ http://analysiscasestudy.blogspot.com

2. Analysis & Outlook
of the world’s semiconductor manufacturing equipment by revenue. 2011 earthquake
had a significant effect on the Japan semiconductor industry as the manufacturing
facilities within the earthquake zone were damaged both in terms of manufacturing
equipment and buildings, infrastructure damage like roads, ports and electric power
shortages due to shutting down of nuclear plants. Other fabs that are away from the
earthquake zone were also affected by the electric power disruptions as power is critical
for 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 had
seen significant fall in the semiconductor sales due to the earthquake and subsequent
tsunami 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 Dec
Post Earthquake Recovery Japanese Semiconductor Industry
As highlighted in the chart above there was fall in sales of semiconductors in Japan in
the months of April, May & June due to earthquake and the sales grew since July when
the semiconductor industry started recovering from the earthquake related damage and
power shortages. Japanese companies are well prepared for the earthquakes and they
include this risk in their business strategy and have elaborate disaster recovery plans
and they are the best prepared in terms of technology and infrastructure to face the
worst earthquakes. This is proved again during the aftermath of the earthquake in 2011.
Despite facing severe damages to the infrastructure, manufacturing units and suffering
human loss in thousands, Japanese semiconductor companies, employees,
semiconductor equipment suppliers and government worked together and with in three
months brought back the production levels to pre earthquake levels. In case of the
semiconductor industry there were few units in the earthquake zone that suffered severe
damages which were expected to take up to six months to recover and start full
production, but the fabs that were away from the earthquake zone started production in
one to two weeks. Both Renesas Electronics' fab in Naka and Texas Instruments' Miho
fab were not expected to recover full production until the end of September according
to IHS iSuppli.
Fujitsu recovered its units quickly and all seven of the Fujitsu Group manufacturing
facilities that were damaged resumed operations at 100 percent of capacity by April 20th
and two out of seven resumed by March 28th . Fujitsu's disaster-response strategy which
it implemented in 2008 after an earthquake in Japan’s Iwate prefecture helped it in
planning recovery during the aftermath of the 2011 earthquake. Freescale announced
that it would not open the fab that was damaged in the earthquake. A Semiconductor
Rajesh Prabhakar Analyst Bio @ http://analysiscasestudy.blogspot.com

3. Analysis & Outlook
Industry 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 the
world’s raw 300mm wafers are produced, the restorations of all of the Shin-Etsu
Group’s affected production bases had been completed. MEMC, another leading
producer of wafers, had resumed partial production of 300-mm silicon wafers at its
facility in Utsunomiya by April and total production by June. Apart from the damages
to the factory buildings and manufacturing equipment, electric power disruptions
caused by the power plant closures were responsible for the majority of supply chain
disruptions as the chemical processing and fabs require secure, stable and continuous
power. Damaged facilities have been repaired; electrical power supply interruptions
were avoided for fabs as per formal requests from SEMI and others, the Japanese
government has excluded semiconductor fabs and chemical plants from the 15% power
cuts planned.
Most of the reports soon after the earthquake in March 2011 have predicted that there
will 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 zone
that were damaged and some of the component suppliers and wafer makers
manufacturing facilities were also damaged. There was also certain amount of panic in
the industry and to calm the situation some of the chipmakers announced that they are
capable of shifting production to alternative locations and positive announcements were
made stating that inventory particularly sufficient wafer inventory existed. But this was
not necessary as Japan semiconductor manufacturers reviewed the situation instantly
and some of the manufacturers that are not near to the earthquake zone restarted
production with in two weeks of earth quake. Some of the manufacturers were facing
supply chain related issues and electric power related issues which were sorted out
easily 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 damaged
severely started repairs and made sure production started slowly by April 2011. By
June most of the fabs have been restored and all of the fabs except three were at 100%
production capacity. Mitsubishi Gas Chemical electronic materials production
subsidiary that manufactures the BT resin used in the majority of semiconductor
packaging also recovered to pre-quake levels in June. Renesas Electronics which was
the most severely damaged fab resumed production on both the 200 mm and 300 mm
wafer fabrication lines in June and said its supply capacity will return to pre-earthquake
levels in September. The Miho fab of Texas Instruments also resumed operations by
July. With strong disaster recovery plans, support form the employees and equipment
suppliers and government, Japanese semiconductor industry restored its manufacturing
units within a shorter time frame and made sure there were no major supply disruptions
in the semiconductor industry. In fact since July 2011 the manufacturing and sales of
the Japanese semiconductor industry picked up and proved that the industry is
resourceful, resilient and global. The slowdown in sales of semiconductors in Japan has
fallen 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 the
devastation caused by the earthquake and subsequent tsunami.
Rajesh Prabhakar Analyst Bio @ http://analysiscasestudy.blogspot.com