IoT & Embedded Technology Blog

Potential Impact of the Japan Disaster on the Worldwide Economy, the Global Supply Chain, and the Semiconductor Industry

With the unfathomable human consequences from this month’s earthquake, tsunami, and nuclear crisis in Japan still unfolding, many observers are predicting technology supply chains will be disrupted as manufacturing facilities suspend and shift operations, and infrastructure damage stalls transportation efforts into, out of, and around the world’s third largest economy.  While Japan has not been the same engine of economic growth in the 21st century that it was 25 years ago, the country remains a major exporter of consumer electronics, computer parts, components, displays, and other goods.

This disaster is expected to reduce Japanese output sharply over the coming months, but economists remain uncertain if steeper declines could occur, especially if energy shortages prove to be significant and prolonged.  According to some estimates, the economic losses from the disaster could reach $185 Billion, or cost nearly 3% of Japan’s total 2011 GDP. In comparison, the Kobe, Japan earthquake of 1995 caused approximately $102.5 billion in damage, accounting for a 2.5% reduction of Japan's GDP, at the time among the costliest natural disasters to befall any one country.

Over the longer term, the Japanese economy – and its people - will certainly rebuild. Currently, however, a number of major semiconductor companies such as Texas Instruments, Toshiba, Renesas and Fujitsu have shut down factories due to either structural damage or due to a lack of electrical power.  One large wafer production company, Shin-Etsu, was even forced to close two plants due to damage from the disastrous chain of events.  Overall, though, Japanese semiconductor facilities have largely been unaffected from a structural perspective. 

 However, the more extensive damage inflicted on transportation infrastructure leaves a considerable question mark regarding how easily chips can be produced and shipped both throughout Japan and internationally.  Over the short term, VDC sees large corporations as being less affected as their supply contracts had been negotiated well in advance, and they have established fixed prices over this period.  Smaller suppliers will likely be hurt more, though, since they often rely more on the spot prices of processors, memory and other semiconductor parts due to the lack of influence in negotiating longer term contracts.  Most large companies have adequate inventories as well, which should sustain them through the shorter term and possibly avoid dramatic price hikes, for now.

In the final analysis, VDC believes the economic impact of this latest disaster, on a global scale,  is likely to be isolated to certain industries and likely to be relatively short lived.  For example, while supply chain constraints undoubtedly are restricting production of some asset-intensive goods (e.g., automobiles, consumer electronics, etc.), VDC already has seen a number of diversified, multi-national technology companies executing on previously established disaster recovery plans, and shifting production to facilities in other regions, within days, instead of weeks.