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BT resin suppliers hopeful that blackouts will be restored in May
Upstream likely to see near-term impact
High-end smartphones and tablets relatively insulated
Despite optimistic hopes for recovery, supply risk persists
Latest on BT resin shortage
BT (bismalemide triazine) shortages have become a major concern for
the tech supply chain over the past few weeks following the Tohoku
earthquake (Telecoms, Media & Technology: More supply issues
surface, 16 March 2011). We checked with various sources in the
Taiwan upstream supply chain following Mitsubishi Gas Chemical’s
announcement that its BT plant could resume full production in May.
Suppliers hopeful of stable power being restored in May
MGC has been impacted by damaged equipment at its sole BT factory
and also by delayed shipments from its own raw-material suppliers,
which have been affected mainly by power outages and logistics. MGC
plans to recover 25% of pre-quake production in early April, 50% in late
April and 100% in May, but with the assumption that the power outages
cease to be a problem by then. Hitachi Chemical has also been affected
by the same supplier issues, but hopes to get back up to 80% production
in early April.
BNPP’s economics team believes that there is a good chance that rolling
blackouts will be lifted in April, but that rationing may have to resume in
the summer due to increased electricity demand from air conditioning
(Japan Economics Spotlight: Will power rationing really end in April?, 23
March 2011, Ryutaro Kono). Therefore, further supply shortages down
the line may be in store.
Priority given to top customers and advanced products
Even with a full May recovery of BT production, IC substrate suppliers will
likely start to run short of BT in the second half of April and also May, and
hopefully recover in June. We believe priority will be given to major
customers and end products like smartphones, while lower-tier
customers will have to qualify other materials, which may be easier for
less-advanced products. The IC substrate supplier, Kinsus, has
maintained its 2Q11 guidance of a sequential decline in revenue (versus
+10% q-q growth pre-quake), despite expectations of a production
recovery in May, as May BT supply would be used for June production.
Despite optimistic hopes for recovery, risks persist
If the blackout situation is resolved by May, the smartphone supply chain
should still see some impact but should be able to manage it better than
other categories due to allocation to the highest priority customers. Other
customers would have to fast-track qualification of alternative materials,
which could take one-to-two months. We believe a mismatch in the
availability of other components like silicon wafers would disrupt smooth
operations of the IC supply chain, as some materials would be available
at different times. Upstream companies in Taiwan have maintained their
full-year guidance, but while their forecasts were conservative before, we
believe they are now only realistic.
In the Taiwan upstream, we have a HOLD rating on TSMC (2330 TT, CP:
TWD70.60, TP: TWD71.00), as disruption risks have not been
appreciated by the Street, a BUY on ASE (2311 TT, CP: TWD31.90, TP:
TWD42.50), and a REDUCE on SPIL (2325 TT, CP: TWD36.80, TP:
TWD31.00).
BT (bismalemide triazine) shortages have become a major concern for the tech supply
chain over the past few weeks following the Tohoku earthquake (Telecoms, Media &
Technology: More supply issues surface, 16 March 2011). We checked with various
sources in the Taiwan upstream supply chain following Mitsubishi Gas Chemical’s
(MGC) announcement that its BT plant could resume full production in May.
Suppliers hopeful of stable power being restored in May
MGC is the world’s largest supplier of BT resin, which is used as a raw material for IC
substrate by companies like Ibiden, SEMCO, Kinsus and Unimicron. This product is a
standard substrate material for many types of IC packaging, including several flip chip
(FC) subtypes, BGA (ball grid arrays) and CSP (chip scale packaging). MGC has been
impacted both by damaged equipment at its sole BT factory and also by delayed
shipments from its own raw-material suppliers, which have been impacted mainly by
power outages and logistics. MGC plans to recover 25% of pre-quake production in
early April, 50% in late April and 100% in May, but with the assumption that the power
outages cease to be a problem by then. Hitachi Chemical has also been affected by the
same supplier issues, but hopes to get back up to 80% production in early April.
BNPP’s economics team believes that there is a good chance that rolling blackouts will
be lifted in April, but that rationing may have to resume in the summer due to increased
electricity demand from air conditioning (Japan Economics Spotlight: Will power
rationing really end in April?, 23 March 2011, Ryutaro Kono). Therefore, further supply
shortages down the line may be in store if nothing is done to bring more power online.
TEPCO has announced plans to acquire gas turbine power-generation systems to ease
the electricity shortage expected this summer. BNPP’s economics team believes that if
the new systems are those generating 300,000 kW, settling up new power stations
should be easy, as their small scale should only take several months for construction.
Bringing these systems onstream in a timely manner should help alleviate the power
shortage in 3Q11. However, transferring power from other regions of Japan is not an
option due to a mismatch in AC power frequencies.
Priority given to top customers and advanced products
Even assuming that BT suppliers are able to make a full production recovery by May,
we believe IC substrate companies will start to run short in the second half of April and
also May, and hopefully recover in June. We believe priority will be given to large and
important customers and end products, in line with our outlook for other key materials
like silicon wafers (Telecoms, Media & Technology: Update: Sendai TMT impact, 15
March 2011, Telecoms, Media & Technology: More supply issues surface, 16 March
2011).
Top-tier IC design companies are waiting for production to recover, while commanding
precedence in allocation. Therefore, we believe the smartphone and tablet supply
chains will be less impacted by this disruption than originally feared. US IC company
Qualcomm, which supplies much of the world’s basebands and application processors
for smartphones, has maintained that its shipments will not be significantly affected by
the direct impact of the material shortage. All of the announced current and upcoming
Android 3.0 tablets are using Nvidia Tegra 2 processor, which uses an alternative
material, ABF (ajinomoto build-up film), for substrate. This material is suitable for the
tablet form factor than for smartphones, so we see no direct impact from application
processors for these products.
As high-performance ICs are very sensitive to the conductive characteristics of
materials, leading IC companies prefer to wait rather than undergo a lengthy and
expensive qualification process required for an alternative material.
Switching materials may be more straightforward for less-advanced products. Non-toptier
customers will have to fast-track qualification of alternative materials, which could
take one-to-two months. Major IC substrate supplier Kinsus is maintaining its 2Q11
guidance of a sequential decline in revenue (versus +10% growth pre-quake), despite
expectations of a production recovery in May, given that May BT supply would be used
for June production.
Despite optimistic hopes for recovery, risks persist
If the blackout situation is resolved by May, the smartphone supply chain should see
some impact but should be able to manage it better than other categories due to
prioritisation to tier-one customers like Qualcomm. Lower-tier customers would have to
fast-track qualification of alternative materials, which could take one-to-two months,
which may impact packaging for networking and memory for PCs. A mismatch in the
availability of other components like silicon wafers would disrupt smooth operations of
the IC supply chain as some materials would be available at different times. Upstream
companies in Taiwan have not changed their full-year guidance, but we believe that
while their forecasts were conservative before, they are now only realistic.
In the Taiwan upstream, we have a HOLD rating on TSMC (as we believe disruption
risks have not been appreciated by the Street), BUY on ASE, and REDUCE on SPIL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BT resin suppliers hopeful that blackouts will be restored in May
Upstream likely to see near-term impact
High-end smartphones and tablets relatively insulated
Despite optimistic hopes for recovery, supply risk persists
Latest on BT resin shortage
BT (bismalemide triazine) shortages have become a major concern for
the tech supply chain over the past few weeks following the Tohoku
earthquake (Telecoms, Media & Technology: More supply issues
surface, 16 March 2011). We checked with various sources in the
Taiwan upstream supply chain following Mitsubishi Gas Chemical’s
announcement that its BT plant could resume full production in May.
Suppliers hopeful of stable power being restored in May
MGC has been impacted by damaged equipment at its sole BT factory
and also by delayed shipments from its own raw-material suppliers,
which have been affected mainly by power outages and logistics. MGC
plans to recover 25% of pre-quake production in early April, 50% in late
April and 100% in May, but with the assumption that the power outages
cease to be a problem by then. Hitachi Chemical has also been affected
by the same supplier issues, but hopes to get back up to 80% production
in early April.
BNPP’s economics team believes that there is a good chance that rolling
blackouts will be lifted in April, but that rationing may have to resume in
the summer due to increased electricity demand from air conditioning
(Japan Economics Spotlight: Will power rationing really end in April?, 23
March 2011, Ryutaro Kono). Therefore, further supply shortages down
the line may be in store.
Priority given to top customers and advanced products
Even with a full May recovery of BT production, IC substrate suppliers will
likely start to run short of BT in the second half of April and also May, and
hopefully recover in June. We believe priority will be given to major
customers and end products like smartphones, while lower-tier
customers will have to qualify other materials, which may be easier for
less-advanced products. The IC substrate supplier, Kinsus, has
maintained its 2Q11 guidance of a sequential decline in revenue (versus
+10% q-q growth pre-quake), despite expectations of a production
recovery in May, as May BT supply would be used for June production.
Despite optimistic hopes for recovery, risks persist
If the blackout situation is resolved by May, the smartphone supply chain
should still see some impact but should be able to manage it better than
other categories due to allocation to the highest priority customers. Other
customers would have to fast-track qualification of alternative materials,
which could take one-to-two months. We believe a mismatch in the
availability of other components like silicon wafers would disrupt smooth
operations of the IC supply chain, as some materials would be available
at different times. Upstream companies in Taiwan have maintained their
full-year guidance, but while their forecasts were conservative before, we
believe they are now only realistic.
In the Taiwan upstream, we have a HOLD rating on TSMC (2330 TT, CP:
TWD70.60, TP: TWD71.00), as disruption risks have not been
appreciated by the Street, a BUY on ASE (2311 TT, CP: TWD31.90, TP:
TWD42.50), and a REDUCE on SPIL (2325 TT, CP: TWD36.80, TP:
TWD31.00).
BT (bismalemide triazine) shortages have become a major concern for the tech supply
chain over the past few weeks following the Tohoku earthquake (Telecoms, Media &
Technology: More supply issues surface, 16 March 2011). We checked with various
sources in the Taiwan upstream supply chain following Mitsubishi Gas Chemical’s
(MGC) announcement that its BT plant could resume full production in May.
Suppliers hopeful of stable power being restored in May
MGC is the world’s largest supplier of BT resin, which is used as a raw material for IC
substrate by companies like Ibiden, SEMCO, Kinsus and Unimicron. This product is a
standard substrate material for many types of IC packaging, including several flip chip
(FC) subtypes, BGA (ball grid arrays) and CSP (chip scale packaging). MGC has been
impacted both by damaged equipment at its sole BT factory and also by delayed
shipments from its own raw-material suppliers, which have been impacted mainly by
power outages and logistics. MGC plans to recover 25% of pre-quake production in
early April, 50% in late April and 100% in May, but with the assumption that the power
outages cease to be a problem by then. Hitachi Chemical has also been affected by the
same supplier issues, but hopes to get back up to 80% production in early April.
BNPP’s economics team believes that there is a good chance that rolling blackouts will
be lifted in April, but that rationing may have to resume in the summer due to increased
electricity demand from air conditioning (Japan Economics Spotlight: Will power
rationing really end in April?, 23 March 2011, Ryutaro Kono). Therefore, further supply
shortages down the line may be in store if nothing is done to bring more power online.
TEPCO has announced plans to acquire gas turbine power-generation systems to ease
the electricity shortage expected this summer. BNPP’s economics team believes that if
the new systems are those generating 300,000 kW, settling up new power stations
should be easy, as their small scale should only take several months for construction.
Bringing these systems onstream in a timely manner should help alleviate the power
shortage in 3Q11. However, transferring power from other regions of Japan is not an
option due to a mismatch in AC power frequencies.
Priority given to top customers and advanced products
Even assuming that BT suppliers are able to make a full production recovery by May,
we believe IC substrate companies will start to run short in the second half of April and
also May, and hopefully recover in June. We believe priority will be given to large and
important customers and end products, in line with our outlook for other key materials
like silicon wafers (Telecoms, Media & Technology: Update: Sendai TMT impact, 15
March 2011, Telecoms, Media & Technology: More supply issues surface, 16 March
2011).
Top-tier IC design companies are waiting for production to recover, while commanding
precedence in allocation. Therefore, we believe the smartphone and tablet supply
chains will be less impacted by this disruption than originally feared. US IC company
Qualcomm, which supplies much of the world’s basebands and application processors
for smartphones, has maintained that its shipments will not be significantly affected by
the direct impact of the material shortage. All of the announced current and upcoming
Android 3.0 tablets are using Nvidia Tegra 2 processor, which uses an alternative
material, ABF (ajinomoto build-up film), for substrate. This material is suitable for the
tablet form factor than for smartphones, so we see no direct impact from application
processors for these products.
As high-performance ICs are very sensitive to the conductive characteristics of
materials, leading IC companies prefer to wait rather than undergo a lengthy and
expensive qualification process required for an alternative material.
Switching materials may be more straightforward for less-advanced products. Non-toptier
customers will have to fast-track qualification of alternative materials, which could
take one-to-two months. Major IC substrate supplier Kinsus is maintaining its 2Q11
guidance of a sequential decline in revenue (versus +10% growth pre-quake), despite
expectations of a production recovery in May, given that May BT supply would be used
for June production.
Despite optimistic hopes for recovery, risks persist
If the blackout situation is resolved by May, the smartphone supply chain should see
some impact but should be able to manage it better than other categories due to
prioritisation to tier-one customers like Qualcomm. Lower-tier customers would have to
fast-track qualification of alternative materials, which could take one-to-two months,
which may impact packaging for networking and memory for PCs. A mismatch in the
availability of other components like silicon wafers would disrupt smooth operations of
the IC supply chain as some materials would be available at different times. Upstream
companies in Taiwan have not changed their full-year guidance, but we believe that
while their forecasts were conservative before, they are now only realistic.
In the Taiwan upstream, we have a HOLD rating on TSMC (as we believe disruption
risks have not been appreciated by the Street), BUY on ASE, and REDUCE on SPIL.
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