Taiwan earthquake may send LCD, chip prices higher

The 6.4-magnitude earthquake hurt production at some key factories in Taiwan

A 6.4-magnitude earthquake that struck southern Taiwan early Thursday may affect the global technology industry by sending prices of LCD panels and certain chips higher, analysts say.

The Taiwan government has already confirmed dozens of injuries due to the temblor, mainly caused by falling objects, as well as power outages and several fires, one of them engulfing a factory owned by Everest Textile in the southern city of Tainan.

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The earthquake also stopped work at LCD and chip factories in the Tainan Science Park, including at Chi Mei Optoelectronics, the fourth biggest LCD panel maker in the world, and at Taiwan Semiconductor Manufacturing (TSMC), the world's largest contract chip maker.

The temblor came at a bad time for the global technology industry. Brisk demand for a number of products requiring LCD screens, from laptop PCs and desktop monitors to LCD TVs, and for chips, including PCs, Blu-ray Disc players and smartphones, has already caused shortages this year. Companies have announced plans to spend big on new factories to keep up with demand. The good news is that the March through June time period is considered a slower time of the year for gadget demand, and a time when component prices normally fall.

This year, however, prices will probably not decline and could actually rise, analysts say.

"While it is too early to gauge the impact of supply and pricing of TFT-LCD panels, we can assume that any downward pressure on panel pricing has been eliminated," wrote Shawn Lee, an analyst at DisplaySearch, in a blog post. "In fact, there are some indications that there will be another panel price increase in March due to the earthquake’s impact on the supply chain."

Chi Mei, which houses its main operations at the Tainan Science Park, said its factories were shut down by the temblor, but that most of its production lines have already recovered. HannStar Display, which also operates LCD factories in southern Taiwan, also stopped production, but said the temblor will not affect its quarterly financial results, in a statement to the Taiwan Stock Exchange.

Chi Mei accounted for 13.3 percent of the global supply of LCD panels as of January, according to iSuppli, while HannStar accounted for 3 percent. The market researcher believes work outages at the two companies will impact large-sized LCD panels most, such as the kind used in LCD TVs.

U.S. glass maker Corning reported that its facilities in Tainan were largely unaffected by the quake but did require some minor repairs.

"Management at our Tainan LCD glass facility has reported that there were no injuries or damage to the facility, and that all glass-making operations recovered within hours and are running normally," Corning said in a statement. The company makes glass used in LCD panel production.

Chip makers were also hurt by the temblor. The global chip industry has been plagued by tight supplies since the middle of last year, but the seasonal drop in demand could offset the impact of the earthquake. One analyst in Taipei called the impact on global supplies minimal, but said the impact depends on what kinds of chips were affected. TSMC and rival United Microelectronics make a wide range of chips, including mobile phone chips for Qualcomm and graphics chips for Nvidia and ATI. Both kinds of chips have been in high demand.

TSMC said its factories in Tainan shut down after the earthquake but have gradually resumed production. "Our initial estimate is that the earthquake caused the equivalent of 1.5 days loss" of chip production for the company, in all, TSMC said in a statement.

UMC said production line equipment at its Tainan factory, Fab 12A, shut down during the earthquake and that it was making minor repairs. The company also expects the impact of the temblor to be about 1.5 work days, it said in a statement to the Taiwan Stock Exchange.

On the same day as the earthquake, UMC also put out a press release saying that it plans to hire an additional 1,000 chip engineers for its southern Taiwan facilities.

It often requires hours or days to resume operations at a chip factory because chips on the production line can be damaged by the shaking and must be assessed, as well as due to the need to shut off and then restart the supply of gases and chemicals needed for chip manufacturing.

Advanced Semiconductor Engineering (ASE), the world's largest chip packaging and testing company, said the earthquake had little impact on its production. The company has dozens of factories in Kaohsiung, a major city in Taiwan also close to the epicenter of the earthquake.

Seismic activity is nothing new to Taiwan. The island is hit by dozens of earthquakes every day, most too small to be felt. Companies on the island have developed strategies to protect devices on production lines from damage during a temblor, such as emergency stoppages, and often can resume normal operations quickly. There were a total of 24 earthquakes in Taiwan on Thursday, according to Taiwan's Central Weather Bureau. Only the one was strong enough to cause damage.

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