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Risky Business for the Electronics Industry

IHS iSuppli announced that, according to its latest research, the major disruption to the global electronics supply chain caused by the Japan earthquake could recur in other regions of Asia due to the high concentration of technology industries in certain countries.

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Unedited press release follows:

Other Asian Electronic Production Regions Face Risk of Japan-Scale Disasters

El Segundo, Calif., April 4, 2011 — The major disruption to the global electronics supply chain caused by the Japan earthquake could recur in other regions of Asia because of the high concentration of technology industries in certain countries, IHS iSuppli research indicates.

“The disaster in Japan has exposed how the focus of electronics manufacturing in a single country can massively impact the highly interconnected global technology industry,” said Dale Ford of IHS. “Because of this, it’s worthwhile to consider what could happen if a production disruption were to strike other key electronics production regions where manufacturing is highly concentrated. These regions include Taiwan, South Korea and certain areas of China. As we move forward, the global electronic industry will have to learn how to manage potential disruptions in various regions.”

The attached figure presents Asian countries and metropolitan areas where electronics production in concentrated.

Potential Taiwan impact
Like Japan, Taiwan supplies a major percentage of global electronics output.

Most significantly, Taiwan is the world’s leading country for semiconductor foundries—i.e., companies that conduct the outsourced manufacturing of chips—collectively accounting for 67 percent of global production. Taiwanese foundries Taiwan Semiconductor Manufacturing Co. Ltd. and United Microelectronics Corp. serve the manufacturing needs of semiconductor companies all over the world, playing a pivotal role in the global chip supply chain. Worldwide, there are more than 150 fabless semiconductor companies using foundry services, representing more than $30 billion in annual revenue.

Some of Taiwan’s other major contributions to the global electronics supply include:

· 24 percent of total semiconductors
· 37 percent of display drivers
· 58 percent of small/medium-sized liquid crystal display (LCD) panels
· 34 percent of large-sized LCD panels

Potential South Korean impact
South Korea represents another major region where a production disruption could have massive worldwide impact. The country presents a particular concern since so much manufacturing is concentrated in a specific location: the Seoul metropolitan area.

“Nearly half of all global production of DRAM occurs in the Seoul area,” observed Mike Howard, principal analyst for DRAM and memory at IHS. “If manufacturing were to be disrupted by some event occurring in this small geographic area, the impact on the global electronics supply chain would be devastating.”

Nearly 40 percent of the world’s DRAM capacity is located near the city.

Seoul is home to one of the world’s true electronics powerhouses: Samsung Electronics Co. Ltd. Also in Seoul is Hynix Semiconductor Inc., another dominant player in the DRAM industry.

A look at South Korea’s overall contribution to global electronics production shows:

· 59 percent of DRAM
· 49 percent of data flash memory, also known as NAND flash
· 27 percent of display driver semiconductors
· 51 percent of large-sized LCD panels
· 18 percent of small/medium LCD panels

China syndrome
China is home to most of the world’s original design manufacturing (ODM), which is the production of electronic equipment on behalf of the world’s major electronic brands. Much of this manufacturing is concentrated in the Shanghai and Shenzhen metropolitan areas.

Four out of five mobile PCs are produced in the Shanghai area, while one-quarter of cell phones are made in Shenzhen.

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IHS (NYSE: IHS) is a leading source of information and insight in pivotal areas that shape today’s business landscape: energy, economics, geopolitical risk, sustainability and supply chain management. Businesses and governments around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS employs more than 4,400 people in more than 30 countries around the world.