Taiwan update: Graphics chips hit harder
The Taiwan earthquake may have inflicted less damage than originally forecast, but it is becoming clear that certain segments such as graphics chips will be affected more than others.
Although it is still impossible to quantify the damage with precision, some analysts are cautiously estimating that the net effect on the PC supply chain is a disruption of a few weeks.
An executive from Taiwan Semiconductor Manufacturing, one of the world's largest chipmakers, said the company has returned to full power today. "In many respects, we're ahead of where we expected to be," said Magnus Ryde, president of TSMC North America.
TSMC today stated that 70 percent of its semiconductor wafer process equipment has been "released" for production. A spokesman said the company's production equipment recovery has improved to 70 percent from yesterday's 50 percent. It is expected to reach 80 percent tomorrow, the company added.
Ryde reported mostly "very limited" damage but added that crucial quartz tubes used in some of the chip production equipment had been rendered inoperable, citing this as an example of an isolated but relatively serious problem. He expected these tubes to be fixed quickly with replacements and that work on the tubes is "happening as we speak."
Analysts remain more concerned. "They're trying to put a good face on things, but the reality is that they're in more trouble than [they're saying,]," said Danny Lam, a principal at Fisher-Holstein, a semiconductor chip technology consultancy. But TSMC was not upbeat across the board. In today's statement the company added that two other facilities are at 50 percent and are expected to return to 80 percent "no later than September 30th" and another facility is expected "to catch up a few days later because the damage is slightly more serious."
The huge role Taiwan plays in the computer industry was underscored by the massive earthquake. A hub for computer production and major base for chip manufacture, just about all of the world's PC makers consign production to, or purchase components from, Taiwanese companies, which make many of core computer components including chipsets, graphics chips, motherboards, and memory.
Hsinchu Science Park, where TSMC and many electrical component markers are concentrated, represents a large chunk of the country's production, especially graphics processors and chipsets. Graphics chips control the images that users see on their computer screens while chipsets form the central nervous system of a computer, along with main processor.
Most analysts agree that these two product categories will suffer the most and that graphics has the greatest potential for becoming a bottleneck in the computer component supply chain. "The choke point is not memory, it's graphics," Lam said.
Ashok Kumar, an analyst at US Bancorp Piper Jaffray, echoed that concern. "Graphics controllers will be the hardest hit," he said.
Lam said Taiwanese companies make processors for the world's largest graphics chip companies, most of which are "fabless"--that is, they do not have their own factories. He added that Taiwan may control as much as 80 percent of the world's graphics chip production. Ryde said a big chunk of TSMC's semiconductor production is graphics.
On the other hand, Kumar and Lam estimate that Taiwan commands roughly 25 percent of the world's chipset production. Intel can step in and alleviate supply constraints in chipsets, according to Kumar.
"Intel has about 75 percent of the market so they can increase output if necessary." But graphics chips are not so fungible because of the concentration of production in Taiwan among a few companies.
"If you don't have a graphics chip, you can't ship a PC," Lam quipped.
Kumar said some companies may have a cushion in their inventories. "Most companies were building up three weeks of inventory [of various chip products] in anticipation of production hiccups in the fourth quarter. So the net impact may be small. "
ATI Technologies, the world's largest graphics chipmaker, said today that it has a "solid inventory position" and should be able to "get through the period of difficulty," according to a spokesperson. He added that even if plants were down for a month, the company would still have enough stock.
Motherboards, another Taiwan stronghold and potential supply flashpoint, should fare better than initially thought. "Most supply can be moved to China, Europe, or North America," Kumar said. The motherboard is the main circuit board in a PC and holds most of the major electronic components.
There are, however, specific instances where the impact on motherboard supply may be significant. Some boards for Advanced Micro Devices high-end processors, for example, may be constrained. An AMD spokesperson responded by saying that the company is "still in the process of determining what the facts are." He added that most of AMD's motherboard production is centered in Taiwan at companies such as FIC and MSI.
Memory chip supply, where Taiwan plays a lesser role comparatively, should not be hammered as some had expected. But this is not stopping prices from rising as they have been over the past few months. NECX, which has a database of components for sale valued at about $30 billion dollars and sells a wide array of memory chips and related memory components, shows certain memory products rising almost 25 percent since Monday (September 20) of last week. This pricing is based on a price tracking mechanism on their site.
Assessment far from hopeless
The overall evaluation of the component supply fallout is catiously
upbeat, considering the havoc the earthquake wreaked in certain parts of
Taiwan. TSMC's Ryde said that, as full power is achieved, the
company should be on its way to restoring production, though he would not
estimate when the company would reach full production.
"We go through [the plant] sequentially...which we are doing now...[but] how much reworking on certain equipment, that we can't see." He reiterated that this month's output may take a hit of 10 percent but would not venture a forecast for October.
The net effect is two weeks of component supply disruption for the PC industry, Kumar said. A week without power and "a week worth of equipment recalibration," he said, adding that inventory should fill in some of the supply gaps.