The Japanese quake has sparked concerns about upcoming softness in electronics exports. There are two aspects that could affect manufacturers – direct demand for endproducts and supply of raw materials and components. This is because power, transportation and communications remain inconsistent. For now, we view the quake as a temporary blip. However, the short-term impact on technology stocks, indeed for the entire market, will obviously be negative while investors await further news.
On the demand side, few of the listed manufacturers have direct "ship-to" exposure to the Japanese market; hence the closure of Japanese plants reported in the press is unlikely to have an impact. Of the larger contract manufacturers, neither Venture nor Amtek has "ship-to" exposure to the Japanese end-market. Even smaller companies like Miyoshi, Cheung Woh or Armstrong do not have direct exposure.
Nevertheless, we do expect activity in the manufacturing sector to turn soft for the next few months as the real challenges will be on the supply chain. Yesterday, flash chips jumped 20% while DRAMs rose 7%. Japan accounts for 20% of world semiconductor production, including 40% of flash chips and 15% of DRAMs used in many consumer devices. On the immediate front, we would expect material costs to rise, as well as working capital requirements as firms seek to stay on top of potential shortages. Venture is likely to be more affected than Amtek in this regard. In our talks to companies, we gather that Venture has already started to respond, since the day after the quake itself, to increase stocks of vital components such as semiconductor wafers, connectors and oscillators, as well as increase the number of suppliers. Notably however, we do not expect sales to be affected although there will be higher working capital requirements and
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