Will Kumamoto Quake Drive Overseas Chipmakers Away?

Taiwan Semiconductor Manufacturing Co. and Sony Group temporarily evacuated employees from factories and production sites following the quake, while Tokyo Electron suspended operations at two manufacturing bases to conduct safety inspections.

Satoshi Oyama, president of semiconductor consultancy Grossberg, said many semiconductor companies operate facilities in Kumamoto, but relatively few manufacture products that can only be made in the prefecture.

Renesas Electronics produces microcontrollers and other products in the area, meaning some disruption is possible. However, Oyama said his greatest concern was Tokyo Electron’s semiconductor manufacturing equipment plant.

The facility produces coaters and developers, equipment used in the semiconductor fabrication process. Tokyo Electron holds more than 90% of the global market for such systems, with its share approaching 100% for equipment used in the most advanced chipmaking processes, according to Oyama.

Any prolonged disruption to shipments of coaters and developers from Kumamoto could therefore have a major effect on the semiconductor industry.

A shortage of the equipment would not immediately halt existing chip production in the same way that a shortage of raw materials might. The greater concern is that semiconductor manufacturers seeking to expand capacity could face delays in installing production lines and increasing output.

Oyama said conditions differ sharply from those during the Kumamoto earthquakes 10 years ago, when the semiconductor market was weak. At that time, some facilities were reportedly disrupted for about one month.

The global semiconductor industry is now experiencing strong demand, with major manufacturers waiting for equipment deliveries from Tokyo Electron and other suppliers. A similar monthlong delay today could have much greater consequences than it did a decade ago.

Demand for cutting-edge chips has increased particularly rapidly because of artificial intelligence, making the equipment produced at Tokyo Electron’s Kumamoto facilities more important than ever.

Tokyo Electron is scheduled to announce its earnings for the April-June quarter on July 31, and attention is expected to focus on any comments concerning the earthquake. However, it remains uncertain whether the company will have completed a detailed assessment of the damage by then.

Safety inspections at semiconductor facilities can take considerable time because precision equipment must be checked carefully before production resumes.

Oyama, who experienced three major earthquakes while working at a Fujitsu factory in Iwate Prefecture, said manufacturers refine their recovery procedures after each disaster. Plants generally recover more quickly from a second earthquake than from the first, and faster still after a third, because detailed manuals and response systems have been developed.

Japan’s frequent earthquakes have forced companies to adopt disaster preparations that are among the most advanced in the world, he said.

The quake has also prompted questions about whether semiconductor production and equipment manufacturing should be dispersed across a larger number of locations to reduce risk.

Oyama said such decentralization may be considered for large semiconductor fabrication plants, but it would be difficult for semiconductor equipment manufacturers.

Production of semiconductor equipment depends heavily on highly skilled workers, as well as networks of subcontractors and partner companies. Components supplied by those businesses must ultimately be assembled and adjusted by teams of experienced technicians to produce a finished machine.

Dispersing production would require companies to establish separate groups of skilled workers at multiple locations, making such a strategy inefficient and difficult to implement.

Oyama also rejected the view that the earthquake would reverse the concentration of semiconductor investment in Kumamoto, where TSMC has established production operations as Japan seeks to strengthen its chip supply chain following the shortages experienced during the coronavirus pandemic.

He said the continued development of Kumamoto as a semiconductor hub was unlikely to be shaken by the disaster.

Taiwan is also highly earthquake-prone, while Japan remains one of the world’s most suitable countries for semiconductor manufacturing because of its industrial base, technical expertise and disaster preparedness.

Oyama said overseas companies were unlikely to conclude that Japan was too dangerous and move production elsewhere simply because earthquakes occur.

TSMC and other manufacturers are expanding in the United States, in part because many of their customers are based there. However, production in the United States faces high labor costs and difficulties in recruiting process engineers and factory operators.

Such workers and the industries that support semiconductor production are concentrated mainly in Japan, South Korea, China, Taiwan and other parts of Asia.

China faces political tensions with Western countries, while Taiwan and South Korea are also viewed as carrying geopolitical risks. Against that background, Japan is increasingly regarded as one of the most dependable locations in Asia for semiconductor production.

Japan also has a broad network of semiconductor manufacturers, materials suppliers and equipment makers. Although earthquakes are frequent, companies have developed extensive countermeasures, while labor costs remain relatively low compared with the United States.

Taken together, those factors are likely to sustain overseas manufacturers’ interest in expanding production in Japan rather than drive them away, Oyama said.

The earthquake is nevertheless expected to reinforce the importance of business continuity planning, including measures to protect supply chains and restore operations quickly after natural disasters.

Source: テレ東BIZ

Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: newsonjapan.com