MEMS supply chain stronger 1 year after Japanese earthquake

March 16, 2012 — The Great East Japan Earthquake, March 11, 2011 off Sendai, was "a Darwinian event" for the micro electro mechanical systems (MEMS) market, says IHS. The MEMS supply chain came out of the disaster much richer, more diverse, and better positioned for growth, shows the IHS iSuppli MEMS & Sensors Service.

Also read: Japan 1 year after the earthquake: Supply chain lessons
The majority of MEMS operations in Japan escaped damage, but the global business impact of the earthquake was significant, said Richard Dixon, principal analyst for MEMS & sensors at IHS. In light of the threat of supply disruptions, some MEMS buyers diversified their supplier bases, reducing reliance on a small pool of sole sources in Japan, he added. The result? A more secure supply chain, and new opportunities for MEMS suppliers globally.

Japan accounted for about 33% of global MEMS sensor market revenue at the time of the earthquake last year. Despite this, only 5 MEMS-related production facilities were directly affected, located in the northeast of the country (see map): Freescale Semiconductor’s accelerometer facility in Sendai; Canon’s MEMS printhead fab in Fukushima; Texas Instruments’ DLP wafer site in Miho; Seiko Epson’s printhead, gyroscope and microphone fab in Sakata; and Micronics Japan Corp.’s MEMS wafer probe operations.

Map. Locations of major MEMS and digital compass fabs in Japan. SOURCE: IHS iSuppli March 2012.

Knowles Acoustics is one example of the supply chain strengthening that took place after Japan’s quake. Last year, Knowles shipped 41% of all microphones — MEMS and others — for cellphones. The company had a single MEMS supplier for its advanced microphones, despite several years using MEMS technology, foundry partner Sony Kyushu in Japan. No other MEMS supplier could have met Knowles’ volume needs if Sony Kyushu had been damaged in the quake (The fab, located on Japan’s southern island of Kyushu, was not damaged).

With the supply chain threat recognized, Knowles is now looking to diversify its MEMS supply base and add an additional source, according to IHS iSuppli information. With two sources, Knowles is likely to attract more cellphone original equipment manufacturers (OEMs), securing more business alongside a more reliable supply chain.

Another example of supply chain concentration was the concentration (97%) in Japan of digital compass production. The total market for electronic compasses was $400+ million in 2011, with the majority coming from 4 Japanese companies: AKM, Yamaha, Aichi Steel and ALPS. If any of the 4 companies’ fabs had been quake-affected, the digital compass supply would have severely faltered. Three of the four plants are located furthest south on the island of Kyushu, including AKM, the largest supplier with 70% market share in 2011. AKM has a general policy of mitigating risk by employing multiple suppliers.

Certain sensor suppliers for automotive applications had a more difficult time following the quake. An estimated 24% of the global automotive MEMS sensors market comes from Japanese companies. The biggest suppliers in this area are Denso and Panasonic. Denso, which makes accelerometers and pressure sensors for Honda and Toyota, showed a Q2 2011 shortfall of $850 million, although it completely recovered in the subsequent quarter.

OEMs like Toyota, Honda and Nissan did an amazing job of damage containment by finding new sources and mitigating the disruptions caused by the earthquake or associated infrastructure-related events like blackouts. Unfortunately, Japanese automotive OEMs were also hit by the Thailand floods in November 2011, impacting much of the resourcing work up to that point.

IHS iSuppli MEMS & Sensors Service can be accessed at IHS iSuppli’s market intelligence helps technology companies achieve market leadership.

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