Japan’s nuclear crisis has led to a supply crisis for Taiwanese firms — from semiconductor and electronics assemblers to auto makers — because of power shortages at their suppliers.
Soon after the quake hit Japan on March 11, corporate executives at local companies assessed the damage to their suppliers in Japan and began scrambling to secure as many orders as possible of crucial parts and equipment from alternative sources, such as US, European and other Taiwanese suppliers.
Their worries and the activation of risk control measures are understandable because Taiwanese manufacturers rely heavily on imports of key components from suppliers in advanced industrial nations — mostly Japan, the US and European countries. Taiwanese companies have shut the door on local suppliers because of concerns that product reliability and performance would fail to meet international standards.
Cost efficiency was another consideration in shutting out local suppliers, as long-term partnerships and large orders give buyers a large bargaining chip when dealing with foreign suppliers, while customers could also oppose plans to switch suppliers.
At present, local semiconductor equipment makers only supply about 7 percent of the equipment used by local chip companies, Ministry of Economic Affairs statistics show.
However, with the growing risk of a break in the supply chain after inventories run out in the next two to three months, local suppliers have an opportunity to reach potential clients in Taiwan.
There is a high probability that Taiwanese suppliers will seize orders before their Japanese competitors resume stable operations, making it possible for them to gain a larger share of the local market. Mounting speculation of supply chain disruption has triggered panic selling of local shares after numerous Japanese companies suspended operations at plants located in the quake-ravaged Sendai area, or in other areas suffering from blackouts and power rationing.
Concern about a supply chain disruption sent the share price of local smartphone maker HTC Corp (宏達電) to a monthly low of NT$965 on Tuesday. A rebound followed the next day after HTC chief executive Peter Chou (周永明) told investors that no supply chain disruption was imminent.
However, investors in electronics companies are worried, for good reason, because the lack of just one key part in an electronic gadget such as a smartphone could halt the whole supply chain.
The impact could extend to a delay in future capacity expansion if Japanese firms can’t manufacture and export equipment ordered by Taiwanese clients. Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and Macronix International Co Ltd (旺宏電子) have expressed their concern.
Compared with their South Korean rivals, Taiwanese manufacturers rely more on imports for key components, meaning they face a higher risk of losing control of their business prospects amid rising costs.
Some of Taiwan’s major suppliers, including Shin-Etsu group, Sony Corp and Nippon Mektron Ltd, have unveiled schedules for restarting factory operations, but it is still unclear whether their supplies will stabilize anytime soon.
In the face of such uncertainties, Taiwanese firms need to reconsider equipment procurement policies. This might not be a big stride, but it is a start.
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