Japanese Production Halts To Cause Parts Scramble, iSuppli Warns Of iPad, iPhone Delays

Tyler Durden's picture

The one aspect of the Japanese crisis that has so far received little attention is the component parts crunch that is starting to create its own earthquake through the supply chain. From Kyodo: "Concern over a shortage of components for manufacturers is spreading globally as many Japanese companies have been forced to suspend production in the aftermath of last week's devastating earthquake. Some of the effects have already surfaced, with U.S. automaker General Motors Co. suspending operations at a plant in Louisiana, while Chinese companies that rely on Japan-made parts are rushing to buy semiconductors." And while none of this matters to markets still basking in the radioactive warmth of the Bernanke Put, some are already sensing the impact on everyone's darling stock - Apple. iSuppli reports that the Japan quake could create iPad and iPhone shortages, a meme that is already pushing AAPL stock down. "The aftermath of the Japanese earthquake may cause logistical disruptions and supply shortages in Apple Inc.’s iPad 2, which employs several components manufactured in the disaster-stricken country—including a hard-to-replace electronic compass, the battery and possibly the advanced technology glass in the display, IHS iSuppli research indicates. The IHS iSuppli teardown analysis of the iPad 2 so far has been able to identify five parts sourced from Japanese suppliers: NAND flash from Toshiba Corp., dynamic random access memory (DRAM) made by Elpida Memory Inc., an electronic compass from AKM Semiconductor, the touch screen overlay glass likely from Asahi Glass Co. and the system battery from Apple Japan Inc." And the last nail is that as more production scrambles to be pushed to other locations, margins will plunge for all tech companies, forcing a wave of preannouncements within 2-4 weeks and crushing bottom lines. Welcome to the re-depression.

From Kyodo on the big picture:

In the auto industry, Toyota Motor Corp. has stopped overtime and holiday work at all of its 14 plants in North America as procurement of parts will be suspended for the time being, while their stocks of components will only last around two weeks.

As the automaker imports about 20 percent of the parts used to manufacture vehicles in the United States from Japan, the scale of its output suspension could expand if production at companies including parts manufacturers continues to be disrupted in Japan.

Due to the effects of the magnitude 9.0 quake that struck northeastern and eastern Japan on March 11, Toyota has postponed the opening ceremony for its new plant in India to make the Etios compact car, while requesting its employees in Thailand to stop working overtime.

As the Japanese carmaker's Thai plant imports components from Japan to manufacture such vehicles as the Prius gas-electric hybrid car, Toyota plans to adjust production capacity by shortening work hours.

Among non-Japanese automakers that have been affected, GM has decided to stop production at its assembly plant in Louisiana due to the suspension of parts imports.

An official of major Swedish automaker Volvo said Japan's situation is deteriorating by the minute, expressing concern that the world's auto industry is likely to face production problems if parts procurement difficulties are prolonged.

In Asia, South Korea, a leading shipbuilder, is facing a suspension of steel imports from Japan as a number of steelmakers including Sumitomo Metal Industries Ltd. have been forced to halt operations in quake-hit areas.

And from iSuppli on Apple's problems in particular:

The aftermath of the Japanese earthquake may cause logistical disruptions and supply shortages in Apple Inc.’s iPad 2, which employs several components manufactured in the disaster-stricken country—including a hard-to-replace electronic compass, the battery and possibly the advanced technology glass in the display, IHS iSuppli research indicates.

The IHS iSuppli teardown analysis of the iPad 2 so far has been able to identify five parts sourced from Japanese suppliers: NAND flash from Toshiba Corp., dynamic random access memory (DRAM) made by Elpida Memory Inc., an electronic compass from AKM Semiconductor, the touch screen overlay glass likely from Asahi Glass Co. and the system battery from Apple Japan Inc.

There potentially are other components from Japan in the iPad 2, however, the teardown analysis process cannot always identify all components’ countries of origin.

While some of these suppliers reported that their facilities were undamaged, delivery of components from all of these companies is likely to be impacted at least to some degree by logistical issues now plaguing most Japanese industries in the quake zone. Suppliers are expected to encounter difficulties in getting raw materials supplied and distributed as well as in shipping out products. They also are facing difficulties with employee absences because of problems with the transportation system. The various challenges are being compounded by interruptions in the electricity supply, which can have a major impact on delicate processes, such as semiconductor lithography.

Furthermore, semiconductor facilities in Japan that had suspended manufacturing activities following the quake cannot truly commence full production again until the aftershocks cease. “Earthquakes ranging from 4 to 7 on the Richter scale will make it impossible to really restart these fabs until the earthquakes stop happening with such frequency,” said Dale Ford of IHS. “Every time a quake tops 5, the equipment automatically shuts down.”

These issues may come at a time when Apple is rushing to ramp up iPad 2 production to meet stronger-than expected demand for the device. The company this week announced that iPad shipments from the Apple Store have been delayed by one week from previous lead times because of the surge in demand.

Apple’s supply of NAND flash has come under scrutiny in light of a temporary suspension of production and the resulting scrapping of some wafers at Toshiba’s main NAND production facility. However, the NAND devices used in the iPad are available from alternative sources, including South Korean semiconductor giant Samsung Electronics Co. Ltd. and U.S. memory maker Micron Technology Inc.

Similarly, the Elpida DRAM component can be alternatively sourced from Samsung.

The compass and glass supply could prove to be more problematic issues for Apple. Although AKM said its fab that produces the electronic compass used in the iPad was undamaged by the quake, the company's shipments are likely to be impacted by the same logistical issues that will plague all Japanese industries during the short term.

Compasses are available from other sources including Yamaha, Aichi Steel, Alps and STMicroelectronics. However, these components are not easily replaceable.

“The calibration of electronic compasses is tricky for a number of reasons,” said Jérémie Bouchaud, director and principal analyst for MEMS and sensors at IHS. “Compasses are sensitive to electromagnetic interference. Furthermore, the iPad 2’s compass works in close coordination with the tablet’s accelerometer and gyroscope. This makes it impossible to simply replace one manufacturer’s compass with another.”

The glass used in the iPad 2’s touch screen overlay could present another supply problem for Apple. While the supplier of this glass cannot be confirmed with certainty, the concurrent release of the iPad 2 and the new Dragontrail Glass technology from Asahi Glass of Japan has led to speculation that Asahi may be the supplier of this durable new glass, according to Kevin Keller, principal electronics analyst for IHS.

Physical tests conducted by IHS reveal that the iPad 2 glass is more flexible and durable than the glass used in the iPad 1, possibly indicating that the glass is Asahi’s Dragontrail.

Asahi Glass reported damage to two of its facilities and damage at a third.

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LawsofPhysics's picture

+1000 rems.  That is what society is degenerating too.  very funny/scary.

johnQpublic's picture

absolutely surreal cartoon....nanny state like a motherfucker

talk about treating the population like children

AhhhItBurns's picture

Good heavans, planned obsolesence not going to plan?

flattrader's picture

If reactor #3 MOX gets spread around, it will be more than pesky parts delays.

I was trying to explain to a friend of mine yesterday (who was convinced the helo water drop meant they were making progress and the things would be allright) the possible implications of wide scale plutonium contamination of the area and the disruptions to the larger global economy (not to mention the Japanese people).

Her eyes glazed over.

umop episdn's picture

Warehouse on Wheels--FAIL

Just In Time Delivery--FAIL

Gardening in my yard--WIN

Cursive's picture

Country Boy Can Survive

- Hank Williams, Jr.

Mad Max's picture

iPad and iPhone delays?  There goes the recovery!  We're doomed!!! DOOMED!!!

schoolsout's picture

lol...sad thing is that will probably be the reason for things to fall apart

 

that said, I'm an Isuzu Commercial Truck salesman and the plant/port are fine, but they are worried about the suppliers.  I have a feeling all sorts of things are gonna get delayed and business models screwed....

 

VinniPukh's picture

ooo you would be privy to all sorts of fun information right now I imagine....

I'm curious. To start with - Based in the States? Which parts in particular are the worry & when will you know? Who's your/Isuzu's biggest fleet customer? What's the average age of the fleet & what's the typical maintenance schedule for the most popular models?

Public knowledge only if you can of course...links to websites are ideal

schoolsout's picture

The diesel trucks are produced in Japan...and parts are from Japan (I'm sure there's stuff on them from other locations, but it is a Jap produced vehicle)

 

Gas trucks are cabs/chassis produced in Jap and sent here to have GM engine installed.

 

I don't know who Isuzu's biggest fleet customer is, but they have some large accounts.  Keep in mind, they sell the world over, not just North America.

 

Not sure what else/when I'll know more.  Has the potential to be pretty scary, really.

genieous's picture

Husband works for Case New Holland, maker of ag tractors/ind loaders - won't name which plant

 

Enuff transmissions until April 1st.

DoChenRollingBearing's picture

See my reply below (downthread) for comments on vehicle spare parts from Japan.  Trouble ahead!

flattrader's picture

Just posted this above--

If reactor #3 MOX gets spread around, it will be more than pesky parts delays.

I was trying to explain to a friend of mine yesterday (who was convinced the helo water drop meant they were making progress and the things would be allright) the possible implications of wide scale plutonium contamination of the area and the disruptions to the larger global economy (not to mention the Japanese people).

Her eyes glazed over.

Scary ain't the word for what will happen if this shit spreads even 200 mi.

VinniPukh's picture

Fair point, but test an alternate hypothesis that says this thing does get contained to a 50 mile exclusion. In this case those parts delays SO is alluding to become the pointy end of any fallout from Japan for the US.

I don't think I phrased my original q's clearly enough - but I'm curious to know, based on SO's available data (if any), who Isuzu's biggest customers are in the USA (I'm clear SO is now USA-based), & the size/age of their fleet as well as their, say, top 2 models they're buying. Additionally what parts are the worry in particular & when do SO's shop mechanics predict this will impact their work.

 

Add: I really need to learn to 'Preview' before 'Save'.......I have no interest in knowing someone's not getting his iPad2 in time for his birthday, or his Acura has to spend another week in the shop - but what piqued my interest here was the link to commercial trucking.

 

VinniPukh's picture

"Her eyes glazed over"...

btw, you'll never get anywhere with the ladies trying to explain the finer points of plutonium fallout... :)

Dr. No's picture

A date that will live in infamy.  The day ipad shipments are delayed.  Doomed is right.  I am going to head down and reinforce my underground lair.  The only thing holding this ship to gether at this point is American Idol finals.  They cant stop that, can they?!  CAN THEY!?

johnQpublic's picture

iPad delays?

 

 

what the hell are we gonna eat?

Mad Max's picture

Pissers.

-Gen. Schwartzkopf

Mad Max's picture

Pansies.

-Gen.Turgidson

Mad Max's picture

Mandrake, have you ever heard of fluoridation?

-Gen. Ripper

nobusiness's picture

You can mess with peoples lives, but don't you dare mess with ipad production.  Now it's a true disaster.  Watch for Obama to cancel his Rio trip.

morph's picture

The DRAM market does not show any evidence of a supply shortage. Prices shot up on monday but have fallen every day since.

 

 

Rogerwilco's picture

All the well-run companies have multiple sources for key components or a cushion built into their inventories, and it appears Apple is managed better than most. Japan is important, but not *that* important.

Scorpio69er's picture

As a former Intel employee, I can tell you that this is the fact. You can bet that Apple has at least 3 sources for everything. They keep their costs down by pitting one supplier against another. Can't deliver? You move down the list and the next guy takes over.

Lednbrass's picture

This is true- but it also takes time.  I work for an electronics manufacturer and our entire supply system,like that of every global company nowadays, relies on the "just in time" lean philosophy.  There is no room for error here and it is run that way on purpose to save money but it magnifies problems when things go wrong.

Everyone is going to be going after the same alternate sources who generally cannot change production overnight, it takes time to gear up for new orders, hire and train new people, etc.  This isnt a snap of the fingers kind of thing.

It will work out eventually, but there are rough seas ahead.

Scorpio69er's picture

re: Everyone is going to be going after the same alternate sources --

The biggest customer always gets top priority. There may be others who want the same part, but if Apple wants a million and the next guy wants only 50,000, guess who gets what they want?

Misean's picture

Can't the Fed just print profits?

Oh regional Indian's picture

JIT meets CAT (Cat Ass Trophy).

I think the world should get used to supply chain disruptions, putting it mildly.

This perfect storm will have it's most pernicious and immediate effects on supply chains, already groaning under variously in-de-bi-stagflating economies.

The imminent death of Supply-sidism is good.

I hope the Japanese go back to making stunning hand crafted things again, those of ageless and timeless value.

Bye Buy iEverything.

ORI

http://aadivaahan.wordpress.com/2011/03/17/archetypal-astrology-from-cathartes-aura/

 

101 years and counting's picture

does this mean the price of an iPad and iPhone will increase?  holy shit, then the Fed gangsters wont even be able to talk about those prices staying steady when discussing lack of inflation.

Cursive's picture

Does this mean my soon-to-be unlocked 3G just doubled in price?

nobusiness's picture

We need commander Spock to cap that reactor.

John Law Lives's picture

Which sell side analyst will be first to have the GUTS to lower EPS on tech sector companies.

Cognitive Dissonance's picture

But....but.....I though Operation Extension Cord was going to do the trick?

As silly as that sounds, based upon CNN and CNBC this morning, between the G7 currency intervention and the 12 gauge extensions cords being hooked up to units 1 and 2 Saturday and units 3 and 4 Sunday (bright yellow so someone doesn't trip over one, unplugging it and starting a meltdown) happy days are here again.

In fairness to CNBC even Joe was a little cynical about the world situation going into the weekend. He asked if you go long or short into the weekend, especially considering Japan's markets are closed Monday for a holiday. But his uncertainty didn't last long.

Dr. No's picture

The extension cord was doomed from day one.  Power plants generate power and therefore have female outlets.  How you gunna connect those cords? Larry the cable guy, where are you?

Snidley Whipsnae's picture

Hello again CD... Another question...

Have you seen any (reliable?) estimates of the per centage of the electrical grid damage in Japan...

I am not asking about grid failure due to generating plant failures, but grid failures due to earthquakes and tsunamis.

Thanks in advance.

max2205's picture

Enter the I-MAD generation

Mercury's picture

"The aftermath of the Japanese earthquake may cause logistical disruptions and supply shortages in Apple Inc.’s iPad 2, which employs several components manufactured in the disaster-stricken country—

Well there goes what's left of the economy...

THE DORK OF CORK's picture

The global supply chain is a absurdity wrapped around a enigma.

The product of CBs riddler like madness and nothing else.

www.youtube.com/watch?v=EAlfr7wsqcM

 

sudzee's picture

I can see it now. Wall Street rushing to securitize i-pad financing as prices escalate to $30,000 each as supply shortage takes hold.

Life of Illusion's picture

 

I’m sure China would be more than happy to produce any of those intellectual patents items for the Japanese.  

 

 

ss123's picture

 

One of my friends went to an Apple store last week and they told him up to 6 weeks wait time for the iPad 2.

Are they letting all the beautiful people off the AAPL bus before this becomes major headlines?

Dr. No's picture

Short those annoying blue shirts.  Also, are the fadded jeans a requirement of that uniform?

connda's picture

It would take a 4 year old to understand the supply chain disruption these events have caused.  Is anyone surprised?

Goldbugger's picture

GM will anounce a major layoff next week when they run out of part for their Truck assembly. It starts.....

John Law Lives's picture

Those GM facilities in Shreveport, LA are schedule to be closed by 2012 as it is.  That is what globalization does.

http://www.wdsu.com/r/19845304/detail.html

ReallySparky's picture

Paging Harry Wanger.