Japan supply-chain woes rattle earnings

SEATTLE Tue Apr 19, 2011 6:39pm EDT

Related Topics

SEATTLE (Reuters) - Global makers of products from motorcycles to mobile phones are finding it harder to get the parts they need after Japan's earthquake and tsunami wrecked supply chains, and investors worry that the worst is yet to come for earnings.

Motorcycle maker Harley-Davidson Inc (HOG.N) lowered the bottom end of its 2011 shipments forecast on Tuesday because of problems getting hold of radio components. Revenue from phone handset maker Sony Ericsson (6758.T) (ERICb.ST) missed forecasts because of difficulties with displays, batteries and other parts.

Apple Inc (AAPL.O), which obtains many parts for its top-selling gadgets from Japan, may reveal on Wednesday how margins are coming under pressure as makers of electronic gadgets around the world compete for crucial components.

Toyota Motor Co (7203.T) said it would cut U.S. vehicle production and might have to lower its full-year U.S. sales targets if parts shortages extend into the summer.

"It's cross-sector. Electronics are used in so many areas," said Bryan Keane, equity analyst for the Alpine Mutual Funds. "It has the potential to be very wide-ranging. To some extent, it's going to affect everyone. Even if your direct supplier isn't impacted, your supplier could get their materials from someone in Japan."

Japan accounts for one-fifth of the world's semiconductors, which have found their way into a host of everyday products and industrial components. The uncertainty now is how long the disruptions will last as the country recovers from the March 11 disaster.

"The big issue is that even if everything now is under control in Japan, they've lost a big portion of their power," said Keane. "Even if they get the big factories up and running, how often are they going to be able to run them?"

CROSS-SECTOR PROBLEMS

The first major batch of earnings reports to hit Wall Street this week highlighted the problems plaguing global companies across a range of industries, from cars to semiconductors.

Iconic motorcycle maker Harley-Davidson said it was closely watching the situation in Japan, and expected only a "modest level" of supply chain interruption, but it still cut the low end of its shipment guidance. Its shares fell more than 5 percent.

Cellphone joint venture Sony Ericsson met analysts' profit forecast, but its revenue missed in what its CEO called a "challenging quarter" because of Japan-related disruptions. Shares of Sony's venture partner Ericsson fell almost 1 percent.

General Motors Co's (GM.N) chief executive warned on Tuesday that Japan-related supply problems, along with the high cost of oil, might be forcing down the company's share price.

Chip maker Texas Instruments Inc TXN.N warned late on Monday of slower-than-usual quarterly sales growth as it scrambles to restart production after the quake, and said it was unclear when the supply of the silicon and wafers it needs would return to normal.

That followed a quake-related profit warning from Japanese electronics manufacturer Toshiba Corp (6502.T).

But the chief financial officer of rival chipmaker Intel Corp (INTC.O) said late on Tuesday he saw no hindrance to production despite supply constraints from Japan.

Alpine's Keane said problems could extend into the second and third quarters, although inventories, which had been running high, may provide some comfort.

"There is room, there is a cushion," he said. "The question is, how long before everyone can get back up to 100 percent?"

(Writing by Bill Rigby; Editing by Edwin Chan, Matthew Lewis and Tim Dobbyn)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
Alfred.Brock wrote:
Japanese supply chains stretch around the world. Parts are ferried by boat or whisked by plane from remote islands to other remote islands, remote locations in Mexico, Vietnam, Eastern Europe, Central and South America elsewhere where they employ cheap labor. The parts are assembled into finished goods close to their destination – such as in Mexico and Canada and then shipped to their destination – like the United States and Western Europe. The result had been profitable but the length of the supply chain has always been susceptible to disruption. In this case the disruption occurred at the head. It was a profitable and busy way to do things but very inefficient and dangerous to business. ‘Free Trade’ and ‘Global Trade’ are phrases for a farce that is causing great misery and encouraging stupidity throughout the world. This disruption is an example of a trigger that could depress the world economy and bring on war and calamity. How would the markets do then?

Apr 20, 2011 5:31am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.