Chip prices jump as Japan quake threatens supply

SEOUL (Reuters) - The prospect of extended supply disruption caused by Japan's devastating earthquake was driving prices for key technology parts higher on Tuesday.

If the supply chain is broken for even a few weeks, the impact could be felt in higher prices or shortages of gadgets such as Apple Inc's iPad and other tablets, smartphones and computers for months to come.

Japan is a dominant chip industry player with around one-fifth of the world's semiconductor production.

From component makers to electronics firms and automakers, Japanese firms are keeping plants shuttered.

Even if damage to electronic production facilities turns out to be limited, power and transport disruption could result in significant shortages of some electronic parts and lead to big price hikes, research firm HIS iSuppli said.

NAND flash memory chips used in the fast-growing mobile devices market, dynamic random access memory (DRAM), microcontrollers, standard logic, liquid-crystal display (LCD) panels, and LCD parts and materials could all be hit, it said.

Spot prices of NAND flash chips extended gains on Tuesday, rising nearly 3 percent after a 20 percent jump on Monday, while DRAM memory chip prices gained 0.2 percent on top of a 7 percent rise on Monday, according to price tracker DRAMeXchange.

Kingston Technology, one of largest suppliers of DRAM and NAND memory in world, said some market reaction had been "of a speculative nature," but added, "there is a valid concern about the disruption to the logistics chain of some DRAM chip manufacturers outside Japan."

"In semiconductor production a temporary stop to the lines usually means that everything that was on the lines at that moment (and a production process takes several weeks) has to be discarded as junk," Kingston said in a statement.

Even if shipments of semiconductor parts were disrupted for only two weeks, shortages and their price impact were likely to linger until the third quarter, iSuppli said.

ALTERNATIVES SOUGHT

NAND flash memory chip demand has been surging, led by mobile devices and tablets like Apple's iPad 2, which is estimated to have sold almost 1 million units.

"The mobile phone industry has been suffering from a component shortage. Now it seems it will be prolonged. Component prices will rise," Inderes analyst Mikael Rautanen said.

Taiwan's Wintek, which makes the touch module for the iPad 2, said it had more than two weeks of inventory left and the short-term impact was limited.

But like others facing potential shortages, the scramble is on to find alternatives. A source at Wintek said it was looking for secondary suppliers to replace Japanese ones. Taiwan is likely to fill some of the gaps, along with other producers including France, said Luo Huai-jia, vice president of Taiwan's electrical and electronic manufacturer's association.

Toshiba Corp, which supplies about one-third of the world's NAND flash memory chips, said it was still inspecting its System LSI factory in Iwate. The factory, which produces microprocessors and image sensors, was halted by the quake and tsunami. It could not say when it might re-open.

Others such as fellow chipmaker Texas Instruments have warned of long delays at plants where it has suspended production, though it had managed to re-direct 60 percent of their output to other sites.

Sony Corp said eight factories making equipment ranging from optical devices, IC cards, blu ray discs, chip equipment and lithium batteries remained closed.

ARM, the British company whose processor designs are licensed to 200 chipmakers, said the globalised nature of the industry meant it was too soon to tell the impact.

"It could end up being there is minimal overall impact, or there could be a key component somewhere along the line which means there are no iPhones," ARM's head of investor relations Ian Thornton told Reuters.

Hynix Semiconductor Inc, the world's No.2 memory chipmaker, said it had around two months of wafer inventory but a prolonged disruption at major producers such as Shin-Etsu may interrupt its production. Shin-Etsu said it had restarted one factory near Tokyo, but two plants near the worst-hit areas were closed. Analysts estimate it is Hynix's biggest supplier, offering more than half of the South Korean firm's wafer requirement.

(Additional reporting by Ju-min Park and Hyunjoo Jin in SEOUL, Isabel Reynolds and Tim Kelly in TOKYO, Clare Jim in TAIPEI, Melanie Lee in SHANGHAI, Ploy Ten Kate in BANGKOK, Paul Sandle in LONDON and Tarmo Virki in HELSINKI; Writing by Lincoln Feast and Alexander Smith; Editing by Anshuman Daga and Andrew Callus)