How Japan's Earthquake Is Shaking Up Taiwan's High-Tech Sector

Editor's Note: This is part of IEEE Spectrum's ongoing coverage of Japan's earthquake and nuclear emergency.

30 March 2011—In our globalized economy, no one suffers alone. Two weeks after a 9.0-magnitude earthquake and a catastrophic tsunami devastated northeastern Japan and brought a nuclear power plant to the brink of meltdown, the regional impacts of the disaster are just starting to become clear. The World Bank has estimated that the cost of damages could reach US $235 billion and has warned that economies across East Asia may be affected.

Taiwan’s high-tech sector is scrambling to determine how its own manufacturing will be affected by the troubles across the sea. Industries that rely on Japanese suppliers for raw materials and components are wondering how long it will take to restore reliable power and transportation in eastern Japan, which is home to several key suppliers. But some Taiwanese companies may also be able to find opportunities in the crisis, filling the void left by the temporary shutdown of Japanese plants.

"Based on our estimation, the worst scenario is that Taiwan’s economic growth will lose 0.2 percentage points due to the earthquake hitting Japan. However, extra orders might somewhat offset the loss," Taiwan premier Wu Den-yih told Taipei-based foreign correspondents on 29 March. In February, the Taiwanese government had forecast growth of 4.92 percent in 2011.

With 11 nuclear power reactors currently shut down, eastern Japan is experiencing electricity shortfalls and rolling blackouts—and the complexity of Japan’s grid makes it difficult to move power to troubled areas. "We’re just praying for [a] steady power supply in eastern Japan soon," an employee of a semiconductor firm who declined to be identified told IEEE Spectrum. Power rationing in eastern Japan might not be lifted until the end of April or later.

According to Taiwan’s Industrial Economics and Knowledge Center (IEK), the power problems in Japan may cause Taiwan’s profitable semiconductor sector to experience shortages of raw materials and key components. If power rationing persists in Japan’s disaster areas, analysts say it might lead to declining performance in Taiwan’s semiconductor industry and cause problems for related electronics manufacturers during the second quarter of this year.

Those in the electronics sector are particularly worried about the factories that make the silicon wafers used in semiconductors. The market research company IHS iSuppli has reported that the earthquake struck the silicon wafer plants of some leading Japanese suppliers, causing these plants to suspend manufacturing. According to iSuppli, both Shin-Etsu Chemical’s Shirakawa facility and MEMC Electronic Materials’ Utsunomiya plant have halted manufacturing. The problems at these two facilities, which together account for 25 percent of the global supply of silicon wafers, might have worldwide ramifications.

According to IEK, Taiwan’s chipmakers import 600 000 12-inch (300-millimeter) silicon wafers monthly, 70 percent of which are from Japan. IEK suggests that if Japanese wafer suppliers don’t recover soon, Taiwanese wafer producers such as Formosa Sumco Technology Corp. (FST) might pick up business. In fact, some local dynamic RAM makers, such as Nanya Technology Corp. and Inotera Memories (both subsidiaries of Formosa Plastics Group), have increased their reliance on FST to minimize their risk.

Other Taiwanese DRAM vendors, such as Rexchip and Powerchip, rely heavily on wafer supply from the earthquake-damaged plants in Japan and have been negotiating raw-wafer purchases from alternative suppliers. For now, Rexchip, a subsidiary of Japan’s Elpida, is operating at normal levels, according to Elpida. The company says Rexchip has enough material on hand to operate until the end of July.

The disaster in Japan also jeopardizes the country’s 80 percent share of the global market in photoresists, materials used in photolithography. To ensure their supply of photoresists, chipmakers and LCD manufacturers have begun seeking alternative sources. IEK predicts that the damage to Japanese chemical plants in disaster zones will cause companies to switch their orders of photoresists to competitors, such as Taiwan-based Everlight Chemical Industrial Corp.

Japan also supplies the world with certain vital chemicals, such as bismaleimide triazine resin (BT resin), a critical raw material used in the manufacturing of circuit boards. Prior to the earthquake, two major Japanese suppliers, Mitsubishi Gas Chemical and Hitachi Chemical, produced more than 85 percent of the world’s BT resin, dominating the market. Operation of some plants was suspended due to damaged infrastructure.

In a research report published on 23 March, IEK warned that Taiwanese printed circuit board companies may soon encounter a shortage of BT resin if production lines in Japan don’t start up within a month. "The shortage of BT resin would seriously affect the production of mobile devices, including smartphones and tablets by famous brands, including Nokia, Apple, Samsung, and others," the report says.

Already, Taiwanese circuit board companies have held emergency meetings to brainstorm potential solutions, which include seeking new suppliers and using alternative resins. According to Kinsus Interconnect Technology Corp., shortages might occur as soon as late April.

The BT resin crisis, however, offers opportunities to some Taiwanese chemical companies. Nan Ya Plastics Corp. (a subsidiary of Formosa Plastics Group) and Elite Material Co. both claim they have invented alternative resins to BT resin. The crisis might help these ambitious chemical companies gain a share of the market.

Woody Duh, director-general of Taiwan’s Industrial Development Bureau, a division of the Ministry of Economic Affairs, says the ministry hopes to lend struggling companies a helping hand. "The government plans to hook up with chemical materials seekers and suppliers in order to help local firms affected by Japan’s disaster get alternative sources," says Duh. However, he adds, the government "won’t reveal related information since some business secrets are involved."

According to IEK, Japan’s disaster also caused production outages at JX Nippon, which previously supplied 75 percent of the global market for rolled annealed copper foil, which is used in flexible circuits. For printed circuit board makers, switching to electrodeposited copper foil is an option. Taiwanese manufacturers of electrodeposited copper foil, such as Nan Ya Plastics and Chang Chun Plastics, might benefit from the situation.

It’s not yet clear how quickly Japan’s high-tech suppliers will be able to recover from the disaster, but at least some companies are returning to normal production. Taiwanese display makers were alerted to a possible shortage of a Japanese material used to bond microchips to LCD panels. Yet that alert was lifted on 25 March, when Hitachi Chemical announced that regular production and shipment had resumed for some of its products, including the bonding material.