Japan Quake Aftershocks May Include Customers Fleeing for Other Suppliers

It's hardly the best of times in Japan, given two natural disasters topped by nuclear radiation leaks. And it may get worse, as the country's high tech industry faces the possibility of defecting customers who might take their business elsewhere to diversify manufacturing processes.

Chip manufacturers have already begun talking to firms in South Korea and China to lessen their dependence on Japan. For example, one maker of equipment to polish silicon wafers, a basic part of semiconductors, received inquiries from foreign companies that don't want dependence on Japanese companies to derail their plans.

Companies simply can't afford to remain locked in a relationship with a specific geography. As the earthquake-tsunami-meltdown trifecta has shown, one huge problem can bring a large chunk of the industry to a halt. The disruptions in Japanese manufacturing will also last some time. A Texas Instruments (TXN) chip plant in Miho, Japan, won't restart even partial production until May. Full production is off until at least mid-July, and maybe later.

Diversifying: Easier said than done
But diversifying is easier said than done. As late as last week, memory chip company Micron Technology (MU), which competes with a number of Japanese companies, still couldn't tell whether the net effect on its sales of the disaster would be an increase or a decrease, let alone how much.

A big complication is that changing suppliers isn't as simple as replacing phone numbers on your speed dial list:

"Products like microcontrollers and DSPs can't simply be swapped out for another chip, whether from the same vendor or another," said Tom Starnes, an embedded processor analyst at Objective Analysis in Austin, Texas. "The programs aren't easily transferable between processors, and even changing other chips like analog may introduce cost, quality, or reliability issues not originally anticipated."

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