Although pale compared with the human tragedy occurring in the aftermath of Japan's earthquake and tsunami, there's potential for economic damage as well. Supply shortages could delay revenue and increase expenses -- with depressed earnings for many technology companies.
Lenovo has signaled that it's a potential victim. Management recently said that tight supplies of memory chips could affect the availability of its just-released tablet. Apple could face shortages of iPad parts, including batteries, electronic compasses, and possibly touchscreen glass, according to market researcher iSuppli.
If supply goes down and demand is unchanged, prices go up. It's happening. Since the earthquake, the average spot price of a widely used DRAM chip has increased 8%. DRAM is the main memory in personal computers, so this has potential implications for big PC makers such as Hewlett-Packard
Flash memory, a critical component in mobile devices such as the iPad, iPhone, and Research In Motion's
For want of a nail …
Could Toshiba's flash partner SanDisk
The complication is the silicon wafers used to make the overwhelming majority of semiconductors. iSuppli estimates that Japan produces about 60% of the worldwide supply, and following the earthquake two factories producing about 25% of the worldwide supply shut down.
Silicon wafers are fragile. Even if the factories come back online quickly, damaged inventory is likely to cause at least a temporary shortage. Arrow Electronics
Silicon wafer shortages could cause shortages of all types of semiconductors. If just one component cannot be obtained, finished products won't ship. Thus, demand for other components such as flash memory could decline as well.
Supply shortages stemming from the tragedy in Japan could reduce production for at least one to two quarters. This situation could depress revenue and increase expenses up and down the supply chain, causing negative earnings surprises and/or disappointing guidance for many technology companies.
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Fool contributor Cindy Johnson owns shares in Microsoft and SanDisk. The Fool owns shares of Apple and Microsoft. Apple is a Motley Fool Stock Advisor selection. Microsoft is a Motley Fool Inside Value pick. The Fool has written puts on Apple. Motley Fool Options has recommended a bull call spread position on Apple and a diagonal call position on Microsoft. Motley Fool Alpha LLC owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.