Most Firms in Damage Assessment Hours After Killer Japan Quake and Tsunami

Hours after Japan’s strongest quake on record struck at about 2:46 p.m. local time Friday, sparking massive tsunamis that inundated large portions of Fukushima and Miyagi prefectures, companies that operate factories in the region said they were still trying to assess the damage, our survey of those firms found. Though the first reports indicated casualties overall in Fukushima and Miyagi were expected to climb into the hundreds, CE firms we contacted said they were aware initially of only minor injuries to employees.

Sony operates six factories in the hardest-hit areas of Miyagi and Fukushima, Sony America spokesman Mack Araki told us by e-mail. Of Sony’s four Miyagi plants, three are run by Sony Chemical & Information Device (SCID) and the other by Sony Shiraishi Semiconductor, he said. SCID facilities there produce IC cards, magnetic tapes and Blu-ray discs, and Sony Shiraishi Semiconductor manufactures semiconductor lasers for Blu-ray players, Araki said. Two Sony Energy Device factories in Fukushima produce lithium-ion rechargeable batteries, he said.

Preliminary reports early Friday were that all Sony employees in Miyagi and Fukushima had evacuated and were safe, Araki said. “Obviously, all of these six factories have halted their operation after the quake” and resulting tsunami, he said. The hardest hit of the six plants was the Miyagi factory in the village of Tagajo, which makes Blu-ray discs, Araki said. The plant took a direct hit from the tsunami, which flooded its ground floor, he said. The 1,000 employees fled to safety on the plant’s second and third floors, he said. “This is all we learned from Japan so far,” Araki said. “We are not able to accurately identify the damages to our factories at this moment."

Panasonic said an unspecified “few” employees at its Lumix digital camera factory in Fukushima incurred “minor injury,” and so did workers at the Sendai plant of the Panasonic AVC Networks Company and at the Koriyama factory of Panasonic Electronic Works. Panasonic Electric Works makes lighting products, information equipment and wiring gear, home appliances, building products, electronic and plastic materials and automation control devices. At all three plants, “some part of the ceiling and wall were damaged, but there has been no fire or collapse,” Panasonic said. “As regards the impact on our business operations, we are in the process of investigation."

M. Setek Co., which counts AU Optronics among its investors, closed its factory in Sendai, the company said. But it was unclear what damage, if any, was sustained at the plant, which makes monocrystal silicon wafers for photovoltaic cells used in solar panels.

Meanwhile, hundreds of miles from the quake’s epicenter and the coastal towns hardest hit by the tsunami, Sharp was reported to be assessing the quake’s damage at the 10th-generation LCD plant it operates in Sakai City and the 8G factory it runs in Kameyama, both close to the company’s Osaka headquarters. Corning, which has a 10G LCD glass factory near one of the Sharp plants, suffered no damage to its facility, a company spokesman said. Sharp also runs an LCD TV assembly plant in Yaita, about 130 miles from Sendai, hardest hit in the tsunami. But there, too, Sharp was assessing what damage, if any, had been done at Yaita, and had nothing official to report late Friday, the company’s New Jersey subsidiary said.

The impact of the quake and tsunami on the flat-panel TV supply chain are likely “in the scheme of things, pretty small,” Paul Semenza, senior vice president of analyst services at DisplaySearch, told us Friday. Most of the panel production in Japan is in the Osaka area where Panasonic and Sharp have plants, but while Sharp has a significant presence in large TV panel production, it doesn’t “in the mainstream market,” he said. In plasma panel production, effects “could really be felt” by Panasonic, Semenza said, noting that plasma TV has had a “great run in 2010 and into 2011."

We couldn’t confirm some reports Semenza relayed about panel production at plants in Korea possibly being temporarily disrupted when automatic shutdown mechanisms kicked in in response to tremors. “If it’s true, it tells you how widespread the physical coverage was,” Semenza said. Unless more far-reaching effects are uncovered from Korea and Taiwan, the earthquake “shouldn’t have a huge impact from a global standpoint,” he said. LG didn’t respond by our deadline to our request for confirmation or clarification of those reports. But at Samsung, the quake and tsunami will have “little or no impact on Samsung’s production schedule,” a company spokesman said. The quake, near northern Japan at 2:46 p.m. local time, was detected by sensors on photo equipment at Samsung semiconductor and LCD manufacturing sites in Korea, the spokesman said. At 2:54 p.m., “some photo equipment was momentarily halted to avoid possible malfunction, but operations had returned to normal as of 4:30,” he said.

Some of the film polarizer companies in Japan could feel effects from the quake, depending on the extent of any damage, Semenza said. He noted that those factories aren’t as sensitive as facilities producing LCD panels and glass substrates. “There’s always a concern with things like glass because melting tanks are brought to high temperatures under a very controlled process and need to be kept there,” he said. If those tanks go down, they have to cool down, be reconfigured and brought back up to temperature, he said. “That can take weeks.” TV set assembly shouldn’t be affected by the earthquake or tsunami because most work is done in China, he said.

If there’s a positive side to the situation for the industry, it’s that the LCD supply chain is experiencing “oversupply” versus tight supply, Semenza said. “There’s been some concern about inventory build and downstream customers pulling back on orders,” he said, adding that there might be specific component areas with insufficient supply. Overall, though, “the percentage of supply coming out of Japan can be absorbed by the system,” he said.

Japan in 2010 accounted for 13.9 percent of all global electronic equipment factory revenue, IHS iSuppli said late Friday in an analysis of the disaster’s possible repercussions. Japan accounted for 16.5 percent of global CE equipment factory revenue in 2010. Japanese suppliers accounted for more than a fifth of global semiconductor production in 2010, it said. Companies headquartered in Japan generated $63.3 billion in microchip revenue in 2010, representing 20.8 percent of the worldwide market, it said.

While not all of this actual production is located in Japan, a large percentage is produced in manufacturing facilities in Japan, IHS iSuppli said. “The major impact on Japan’s semiconductor production is not likely to be direct damage to production facilities, but disruption to the supply chain,” it said. “Suppliers are likely to encounter difficulties in getting raw materials supplied and distributed and shipping products out. This is likely to cause some disruption in semiconductor supplies from Japan during the next two weeks."

Japan in 2010 accounted for 6.2 percent of the world’s $86.3 billion in global production of large-sized LCD panels in 2010, IHS iSuppli said. “Japan also accounts for 14 percent of LCD TV panel production,” it said. “The country is home to many higher-generation fabs,” including Sharp’s, the world’s only 10G LCD fab, it said. The firm’s “preliminary view” is that the Sharp fab “has not been directly impacted by the quake, given the remote location of the fab. Only one large LCD fab may be in the zone of peripheral impact by the quake,” that of an NEC facility, it said. “The more important impact may be on Japan’s production of components for LCD panels,” it said. “Japan accounts for a very high share of components used in LCD panels and LCD-based products,” it said.

Japan’s key ports closed down immediately after the disaster, prompting other analysts to speculate what the short- and long-term effects on shipments might be. “A big issue is what is going on in the ports and whether you can get stuff out or in at any given time,” said Andrew Abrams, an analyst at Avian Securities. “My guess is we will have to wait until Monday or Tuesday before everything is back to normal and at worst two to three days’ worth of production gets slowed down from the Japanese side."

Many of the major LCD manufacturing equipment suppliers have plants in Japan, including Applied Materials, Tokyo Electron and Orbitech. But many of those vendors work on five-month lead times, so the impact of their businesses is expected to be minimal, Abrams said. “Maybe it slows things down for 30 days, but not enough to change the outlook for everybody,” he said.