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3/18/2011
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Japan Earthquake Driving 'Panic' Buying In Component Market

Increased ordering by electronics manufacturers seeking to bolster inventory in the face an anticipated scarcity are prompting wide swings in pricing on the cash-driven spot market, according to iSuppli.

The threat of component shortages as Japanese manufacturers struggle with power outages and disrupted supply chains in the aftermath of the devastating earthquake has resulted in some panic buying by device manufacturers, a research firm says.

Prices on the spot market in which goods are sold for cash and delivered immediately have swung wildly, climbing 10% to 30% over the last 24 hours, Rick Pierson, analyst for IHS iSuppli said in an interview Friday. Component distributors are seeing a significant increase in orders as electronics manufacturers choose to play it safe and fatten inventories to ride out possible shortages.

"The round of panic buying has begun," iSuppli analyst Rick Pierson said in an interview. "We have seen prices increase."

Among the problems semiconductor facilities in Japan have faced are aftershocks ranging from 4 to 7 on the Richter scale that have forced them to suspend manufacturing activities, iSuppli says. The equipment in these facilities automatically shuts down when a quake tops 5, so these factories are unlikely to fully restart until the temblors stop with such frequency.

Japan, the world's third largest economy, is a major supplier of electronics parts, such as NAND flash used in smartphones and other mobile devices, and DRAM, the system memory used in PCs. The country also makes more than half of the silicon wafers used in making chips for a variety of electronic devices, along with the conductive film in LCD circuits and the resin that connects chips on circuit boards.

Hitachi, a provider of raw materials for circuit boards, suffered damage to some of its production facilities, iSuppli reported. "That could have an impact on some of the mid-stream component suppliers and some of the downstream IT industries," Pierson said.

Small and midsize electronics manufacturers and component makers face the biggest problems getting supplies during shortages. That is because they do not have the buying clout of large companies that have longer term contracts in place to keep component prices stable for a while. Analysts also believe that most device manufacturers have enough inventory to last for at least a couple of weeks. Shortages, if they occur, would likely happen in the second quarter.

Apple is one of the company's iSuppli has identified as being vulnerable to shortages in components for its latest iPad. Such components as the tablet's touch screen-overlay glass, electronic compass, and battery are unique to the device and can't be easily replaced if the Japanese suppliers are unable to resume full production.

Japanese components are used in smartphones and other high-end mobile devices because of the quality of the parts. If factories in Japan are unable to resume normal operations over the next few weeks, then mobile phone makers may find it difficult to find replacement parts of similar quality. "There's a lot of hand wringing going on right now with some of the leaders in the handset market," Pierson says.

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