China's consumer electronics companies are gearing up for tighter components supply and exponentially higher costs.
While most makers use components sourced locally or from Taiwan or South Korea, they are still feeling the effects of the spike in the cost of Japan-made alternatives. The impact, however, will have varying levels across multiple industries.
Shortages and high costs will have little bearing on companies that make their own components or export mostly low-end and midrange models. But sectors that cannot use alternatives to Japan-made components and makers that rely heavily on materials imported from the quake-stricken country will be most heavily affected. Industries where key components are produced only by a handful of suppliers will feel the impact as well.
The last one is particularly true for NAND flash memory chips.
Toshiba, one of the world's major suppliers of the component, has shut down some factories as a result of the quake. Most China makers do not procure from Toshiba, but from Samsung and Hynix in South Korea. Even so, Toshiba's factory closures have affected their chip sourcing.
DRAMeXchange, which tracks and posts contract and spot prices for various memory chips, showed quotes for all types of Samsung and Hynix NAND flash rose on March 14. Samsung's 16GB (MLC) chip, for instance, surged nearly 33 percent from $3.05 to $4.05. The same chip from Hynix climbed 27 percent to $4.
China manufacturers are still expecting spot prices to increase further in the months ahead. Moreover, several have had their component orders cancelled by the chip suppliers due to shortages. Some electronic makers in Shenzhen, Guangdong province, even had to suspend production due to interrupted Toshiba NAND flash chipset supply. These companies are now urgently looking for alternative providers.
Strong impact on components
The earthquake also affected CCD sensor, DSP chip and block camera module costs and supply. Major vendors such as Sony and Panasonic have shut down some production. Prices of these components have increased five or six times over the past few days. Since the supply situation in Japan is still unclear, it is difficult to project cost trends for at least the next six months.
China makers are concerned the impact would be much greater if suppliers from Japan are unable to resume production and normalize supply in the weeks ahead. Although such components can be sourced from South Korea, Japan-made versions have greater recognition and acceptance among buyers.
Even manufacturers of car DVD players are affected. Although most companies use locally made materials and components, there are still a considerable number of makers that rely on parts imported from Japan, including laser heads from Hitachi, Sharp and Sanyo. While component suppliers have not yet adjusted prices, companies are expecting distributors to stock up on parts. They are anticipating to feel the impact in the next two or three months.
But LCD module and TV manufacturing will be hit hard as well. Japan's Hitachi Chemical and Sony Chemical & Information Device are the two major producers of anisotropic conductive film (ACF), a type of adhesive used for joining module driver ICs. The Taiwan Industrial Technology Research Institute estimates Hitachi Chemical provides at least 40 percent of the ACF used by major LCD module suppliers, including Samsung, LG Display, AUO and CMO. Hitachi Chemical, however, had to suspend some production as a result of the quake. Should the factories remain closed for more than two weeks, LCD module companies' output will be greatly affected. This in turn could have an impact on China TV makers that use Samsung, LG Display, AUO and CMO LCD modules.
The earthquake is also likely to result in PV silicon shortage if factories in Japan are unable to resume production in the next two or three months. CNBM International Corp. manager Jacky Chen said the company imports PV silicon from Germany and still has about one month's worth of inventory. Several major players in the industry likewise source from the US and the EU. Smaller makers, however, rely mainly on PV silicon from Japan.
Little impact on LCD panel industry
Suppliers generally purchase small and midsize LCD panels from Taiwan and South Korea, importing very few units from Japan. Richard Zeng of Eken Industrial Co. Ltd said all of the LCD panels used on the company's tablet PCs, e-book readers and netbooks come from Taiwan.
Further, LCD panel factories in Japan are located in areas that are not as heavily hit by the earthquake. As such, production and supply are not likely to be affected.
In addition, these months are considered a low season for LCD panel sourcing. As such, most factories have high inventories, which often results in lower prices. Compared with other components used by China's consumer electronics makers, the supply and quotes for LCD panels will remain relatively stable for the next few months.