Macquarie Research, : – Japan supply chain disruption appears under control

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MacqTech Express
Regional tech – Japan supply chain
disruption appears under control
Event
 Amid all the noise this week, our Regional Tech Team‟s checks indicate that
the supply chain disruption from Japan is real, but more a matter of shorterterm
impact rather than long-term structural impairment. Our Japan teams‟
checks show most damage to manufacturing sites is limited and production is
slowly recovering, while most companies regionally are sitting on 1-2 months
„safety stock‟ levels for most of the key components.
 Thus, we believe the short-term disruption is manageable and recovery could
accelerate as plants start to come back online. Large companies are also
likely to better secure allocation amid any supply chain dislocation. We
believe stocks have over-reacted to the lack of clarity of duration of supply
chain disruption, and would be looking to buy oversold stocks with solid
fundamental/intact recovery stories.
 Top ten picks across the region into the correction are SUMCO, TEL, Kyocera,
LGE, HTC, AUO, Wistron, TPK, Asustek and SPIL. Prolonged power rationing
in Kanto/Tohoku and nuclear radiation risk remain areas to watch.
Impact
 Components – limited structural change: George Chang‟s checks
show structural damage to plant/equipment doesn‟t appear to be large
while progress is being made to bring facilities back online. Thus the
direct impact on production is likely to be “a few weeks”, rather than a “few
months”. The impact on connector (Hirose) and switches (Alps) is limited,
while Nippon Chemi-con‟s aluminium capacitor plants are still undergoing
restoration. For BT resin, Mitsubishi Gas Chemical sees partial damage to
facilities in Fukushima, but electricity and gas supply is now available.
Hitachi Chem is already resuming production, while QCOM stated it has
diversified supply and a substitute (epoxy-based laminate), and HTC sees
inventory levels fine through April, so we think the impact is manageable.
 Semis – short-term impact in wafers/CMP slurry: Damian Thong sees
short-term tightness in 300mm wafers supply as the stoppage of Shin Etsu's
Shirakawa plant affects 500k wafers/month (~15% of total demand).
SUMCO's 400k/month excess capacity can mostly offset this, but there may
be a short-term shortage as capacity may not be immediately brought up.
While there is limited physical damage to Hitachi Chem's CMP slurry plant,
lack of wafer could create some short-term disruption. Overall, we estimate
~10-15% of Japan‟s chip industry is disrupted, but the impact should be
mitigated by safety stock at chipmakers and distributors and alternative
sourcing. DRAM/NAND fabs are not directly affected and are operational.
 LCD material–minor impact on small/mid: Michiko Kakiya sees a minor
impact on large-sized LCD as most plants are located in the Chubu/Kansai
area, but small/mid LCD could be affected by roughly one month damage to
facilities at Hitachi/Toshiba, which could hurt shipments for LGE's Optimus
Black (Hitachi‟s NOVA display) launch in April, in our view. ACF could also
see tightness due to damage at Hitachi Chem (60% mkt share). For the rest
of LCD supply chain, while there could be short-term disruption, this is likely to
be manageable as customers have 1-2 months safety stock on hand.