Australia’s IT community faced shortages of key high-tech components as a result of the tragic earthquake and tsunami in Japan. In a report last month IDC outlined the disaster’s impact on 16 key Japanese vendors, speculating that even those with unscathed manufacturing plants would experience delays.
Sony was among those manufacturers worst hit, with some 12 factories suspended from operation, IDC reported. Those plants produced magnetic tapes, lithium ion batteries for PCs and mobile phones, LCD TVs and a number of other components.
Even if these plants could be turned back on, production would be impacted by power outages as utility TEPCO attempted to control the unstable Fukushima nuclear plant.
Sony expected to find ways to shift production from these 12 facilities to its network of plants elsewhere in Japan to continue to bring products to market.
Toshiba, meanwhile, denied reports that its NAND flash memory factories were impacted, but did halt chip production at factories in the Iwate Prefecture. The Iwate plant manufactured LSI chips for microprocessors (used in image sensors, for example). Toshiba also said it would close an LCD (liquid crystal display) factory for a month.
Japanese media reported Fujitsu had shifted PC manufacturing from a plant close to the impacted Tohoku region to other sites to continue supply.
NEC appeared to have been more fortunate, having reportedly resumed operations at all facilities, gradually increasing production as it gained a steadier supply of components. But even at those relatively unscathed manufacturers such as NEC, there were a number of reasons why production would slow, including supply chain problems, power shortages and cultural factors unique to Japanese industry and society.
Analyst's take...
Trevor Clarke, senior analyst, IDC
The Tohoku Pacific Ocean Earthquake that hit north-eastern Japan on March 11 and the associated tsunami that crippled Fukushima Daiichi nuclear plant will have an indirect impact on the Australian and New Zealand ICT markets in the coming six months.
Although the natural disasters that have affected parts of Australia and New Zealand, such as the Queensland floods at the beginning of this year and the Christchurch earthquake of February, which have already directly impacted end user spending on ICT, the bigger challenge with the disaster in Japan sits on the vendor and channel side of the market equation.
Unlike the local disaster effects, while spending and economic conditions in Australia and New Zealand may be impacted from the earthquake as a result of Japan being a key trading partner, it is those that source components or products from Japanese companies and then sell them in this region that will be most affected from these tragic events.
The situation in Japan is in flux and IDC advises parties to pay attention but also to be mindful of drawing quick conclusions, because the severity of the effects may not be understood for a while. For those who have a lot of Japanese brands in their portfolio and await direction from vendors as to inventory restrictions, look at alternative brands. A trend for buyers to show solidarity by preferencing Japanese goods and services (eg contracts) will help many brands.
And the Japanese Government will place a priority on kickstarting production. For ICT companies dealing with Japan it is likely spending will be constrained in the short term as this is one of the first areas to be hit, and usually more so than spending on other areas of the economy. However, long-term there will be an increase in spending as both the consumer and commercial markets recover.
Jorn Bettin, value-chain adviser, IBRS
The first point to realise with supply chains in our high tech environment is to distinguish between those heavily based on commodities and those of high- value goods that require specialised techniques. With commodities, we’re looking at things on the hardware side where you have easy replaceability of suppliers. The margin on commodities tends to be low and is highly competitive but the upside for manufacturing companies is it’s a low- risk process and on the user side these commodities are low risk because you can easily change suppliers if things go wrong – it’s a plug-and-play model.
On the other end of the spectrum when you’re talking about high-value goods you’re talking about specialised skillsets and the competitive edge of companies.
Typically, you have specialised suppliers with high levels of skills who have invested in expensive processes and machineries so the number of production sites tends to be limited – that lends to high risk if things go wrong. In Japan they had some precautions in place but those aren’t always enough.
Very few people understand production processes and if something were to go wrong at one of those sites the impact would be enormous. If certain production sites are taken out then the recovery time could be months or a year. If you look at software the risk is those people who have the knowledge to understand its construction. I’m not sure how many people with deep domain knowledge have disappeared with the tsunami; the impact is probably not making the headlines.
It’s interesting to look at the root cause of supply-chain disruption – why are countries or organisations running with these risks of not having enough slack in their processes to absorb such disruptions? Over the past decade the pressure on manufacturing costs was severe. One way to save money is on risk management and that can exacerbate the impact from disaster.
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