Dataquest Says Semiconductor Industry Feeling Effects From Taiwan Earthquake

EDP Weekly's IT Monitor, Oct 4, 1999

As Taiwanese companies try to assess the damage from the September 21st 7.9 Richter magnitude earthquake, the biggest concern for the semiconductor industry is the impact it will have on the foundry business. According to Dataquest Inc., Taiwan is home to 28 wafer fabs, accounting for more than half of the world's semiconductor contract manufacturing business and more than 10 percent of the world's silicon area processing capacity.

"Every day the 28 fabs are out of operation, more than $40 million is lost," says Jim Handy, director and principal analyst for Dataquest's Memories Worldwide program. Dataquest analysts say the feedback from contacts they have in the area is that the main problems right now are regaining power and replacing the broken quartzware in the fabs.

"In many fabs, a large portion of the furnace tubes and boats have been damaged, and the breakage has been so widespread that some worry that there is not enough quartzware capacity worldwide to replace these tools within a reasonable time," Handy says. "This could cause many fabs to sit idle, waiting for this critical equipment."

Dataquest analysts say some input they have received indicates that although most of the fabs have been designed to withstand far stronger earthquakes than this one, equipment was not bolted down in many of the fabs, and there many have been significant equipment losses. Although the majority of the semiconductor business in Taiwan is not dynamic random access memory (DRAM), the earthquake will effect the DRAM market. Taiwanese manufacturers account for about six percent of the world's DRAM output. The market has already experienced a price increase, and this news should force DRAM prices ever higher.

"The DRAM spot market, which before the earthquake was already responding to other bad news, has seen spot prices double since the beginning of July," Handy says. "The Taiwan earthquake has added fuel to this fire, and we expect to see prices rise above the already large increases that have occurred since the quake. We do not expect the current price rise to endure, however, because there is still a DRAM overcapacity, and the price rise is sure to motivate suppliers to increase their production."

Other segments within the semiconductor industry are still being assessed. Programmable logic device (PLD) vendors represent one of the major customer segments for the foundries. Dataquest analysts say the leading PLD vendors have said they have sufficient inventories to ride out any anticipated disruptions at the foundries. The analysts say next quarter's revenue is probably unaffected, but there could be some impact in the first quarter of 2000 as PLD vendors work to refill the production pipeline.