Worries over component supply continued to weigh on the technology sector on Tuesday, in the wake of Japan's devastating March 11 earthquake and tsunami which have disrupted production and deliveries of key parts.
Finland-based Elcoteq, which assembles cellphones and set-top boxes for many global brands, warned it faced volume and profitability risks in the short and medium term due to the disaster in Japan.
Elcoteq said clients were worried about the allocation of parts and could see the problem dragging on.
"Some of our customers are worried not only about Q2 and Q3, but that it could be a longer-term issue," its chief executive Jouni Hartikainen said, adding the impact was not yet severe.
Elcoteq, which has been a key supplier to Nokia and Blackberry maker Research In Motion, still counts them among its 10 largest clients.
Other clients include Huawei, Philips, LG Electronics and Sony Ericsson.
Nokia, the world's biggest mobile phone maker by volume, warned last week there would be shortages of some of its phones due to the hit on the supply chain, but that the impact on earnings would be limited.
Top telecom gear makers Ericsson and Alcatel-Lucent said on March 16 the disaster would likely hit their supplies, but companies are struggling to quantify the impact.
Network product provider Ciena said on Tuesday the disaster has had "little to no impact" on its supply chain because it does not source any component exclusively from Japan.
"We are monitoring the situation closely and working with our suppliers to determine what, if any, impact this natural disaster might have in the long term," Philippe Morin, Senior Vice-President at its global products group, told Reuters.
Despite ports reopening, seaborne trade has been at a standstill in parts of northeast Japan as shipping companies divert vessels away from the crippled Fukushima nuclear plant due to radiation fears.
Earl Lum, head of telecom gear and component research firm EJL Wireless, said that logistics remains a major issue, "with transportation from the factories a problem".
Analysts and technology firms say shortages of BT resin — a plastic material that is used to make the substrate on which chips are attached to make a chipset — could directly hit smartphone makers and consumer electronics firms
Some 80 percent of BT resin is made in Japan and companies tend to have only one supplier, said Pierre Ferragu, an analyst in the telecom equipment sector at Sanford Bernstein.
Mitsubishi Gas Chemical, which makes half the world's BT resin supply according to media reports, has closed two plants near Fukushima.
Research firm Ovum said the earthquake could have a direct impact on the optical telecom component market — where the top firms are Finisar, Sumitomo Electric and JDS Uniphase — but the size of the effect was unclear.
Japanese firms generate 25 percent-30 percent of revenue on the $5.6 billion market, said Ovum analyst Daryl Inniss.
Much bigger is the hit on so-called discrete optical components — materials that transform electrical signals into optical ones — key to any optical transmission, of which some 75 percent are made in Japan, Inniss said.
Companies such as Alcatel-Lucent and Ciena could be affected by shortages in optical components. Alcatel-Lucent is expected to earn 16 percent of revenue and 10 percent of operating profit in 2011 from optical equipment, according to Goldman Sachs.
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