Tech firms fret over length of Japan disruption

By @ibtimes on

Disruption of the production and delivery of components used by the global technology sector continued to weigh, more than two weeks after a massive earthquake and tsunami devastated Japan.

Finland-based Elcoteq, which assembles cellphones and set-top boxes for many global brands, warned it faced volume and profitability risks in the short and medium term because of the disaster in Japan.

Elcoteq said clients were worried about the allocation of parts and could see the problem dragging on.

Some of our customers are worried not only about Q2 and Q3, but that it could be a longer-term issue, its chief executive, Jouni Hartikainen, said, adding the impact was not yet severe.

Elcoteq, which has been a key supplier to Nokia and Blackberry maker Research In Motion, still counts them among its 10 largest clients.

Nokia, the world's biggest mobile phone maker by volume, warned last week there would be shortages of some of its phones due to the hit on the supply chain but that the impact on earnings would be limited.

Top telecom gear makers Ericsson and Alcatel-Lucent said on March 16 the disaster would likely affect their supplies, but companies are struggling to quantify the impact.

Network product provider Ciena said the disaster has had little to no impact on its supply chain because it does not source any component exclusively from Japan.

We are monitoring the situation closely and working with our suppliers to determine what, if any, impact this natural disaster might have in the long term, Philippe Morin, senior vice president at its global products group, told Reuters.

Seaborne trade has been at a standstill in parts of northeast Japan as shipping companies divert vessels away from the crippled Fukushima nuclear plant due to radiation fears.

Earl Lum, head of telecom gear and component research firm EJL Wireless, said that logistics remains a major issue, with transportation from the factories a problem.

INTEL OK

Silicon wafers used to make microchips could temporarily run short over the next few weeks after suppliers halted production after the quake.

Shin-Etsu Chemical, the world's largest maker of the chip substrate, has been forced to halt manufacturing at its largest wafer plant and MEMC has also stopped work at a large plant north of Tokyo.

Small chipmakers running low on stockpiles could face difficulties getting silicon wafers although heavyweights like Intel will likely have the bargaining power to guarantee their needs are met.

From a materials standpoint there's nothing we see that will prevent us from being able to meet our commitments, Intel spokesman Chuck Mulloy told Reuters.

Shortages of BT resin -- a key material in smartphones and tablets -- could directly affect manufacturers if inventories run out before Mitsubishi Gas Chemical, a key supplier, reopens two plants near Fukushima after the quake.

Some 80 percent of BT resin is made in Japan and companies tend to have only one supplier, said Pierre Ferragu, an analyst in the telecom equipment sector at Sanford Bernstein.

Switching suppliers is difficult because each of their resins is distinct and untested changes can lead to manufacturing problems.

Research firm Ovum said the earthquake could have a direct impact on the optical telecom component market -- where the top firms are Finisar, Sumitomo Electric and JDS Uniphase -- but the size of the effect was unclear.

Japanese companies generate 25 percent to 30 percent of revenue on the $5.6 billion market, said Ovum analyst Daryl Inniss.

Much bigger is the impact on so-called discrete optical components -- materials that transform electrical signals into optical ones -- key to any optical transmission, of which some 75 percent are made in Japan, Inniss said.

Companies such as Alcatel-Lucent and Ciena could be affected by shortages in optical components. Alcatel-Lucent is expected to generate 16 percent of revenue and 10 percent of operating profit in 2011 from optical equipment, according to Goldman Sachs.

(Additional reporting by Leila Abboud in Paris,and Noel Randewich in San Francisco; Editing by David Holmes, David Hulmes and Steve Orlofsky)

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