(Corrects spelling of company name to Siltron in para 13; adds dateline, byline)
* Post-quake plant closures could push prices up 20-30 pct-iSuppli
* Quake damage could slow production at Shin-Etsu until October-iSuppli
* South Korea’s LG Siltron could expand market share
* Smaller chipmakers may be hit by wafer shortages
By Isabel Reynolds
TOKYO, March 25 (Reuters) - Supplies of silicon wafers used to make semiconductor chips could start to run short in May, following the suspension of operations at two major plants hit by the March 11 earthquake that devastated large areas of northern Japan.
But several analysts say tightness in the market will likely be short-lived, given excess capacity and high inventories before the disaster.
The aftermath of the quake could also prove an opportunity for LG Silitron of South Korea to make further inroads into the Japan-dominated industry, worth more than $7 billion in 2009.
Japan’s Shin-Etsu Chemical , the world’s largest maker of the chip substrate, has been forced to halt manufacturing at its largest wafer plant, and has given no time frame for restarting it.
MEMC of the United States has also stopped a large plant north of Tokyo affected by the tremor, with no date set for resuming production.
The companies do not reveal production capacity, making it hard to judge the impact, but analysts estimate that together the two sites account for 20 to 30 percent of total global supply of 300 mm wafers, the current standard.
While large clients such as TSMC of Taiwan likely have the bargaining power to obtain supply, smaller firms may face difficulties, analysts say, and the effect could spill over into production of electronic goods.
“Most clients have enough inventory to cover April, so the problem will start in May,” said IHS iSuppli vice president Akira Minamikawa, who said prices could rise as much as 20 to 30 percent and the effects of the quake could be a drag on production at Shin-Etsu for six months.
Silicon wafer production is divided into two processes, the front-end drawing of the massive silicon ingots, which takes days, and the back-end slicing and polishing of the wafers. Shin-Etsu carries out both processes at its Shirakawa plant.
“If they are shaken hard enough, the ingots will drop down inside the machines, breaking glass components which will need to be replaced,” Minamikawa said.
With so many Japanese factories damaged in the quake, it will take time to obtain the necessary spare parts, delaying Shin-Etsu’s return to full production, he added.
Problems at Shin-Etsu are likely to prove an opportunity for other makers, including Japanese rival Sumco , which many analysts say has spare capacity. Sumco trailed Shin-Etsu in wafer revenue in 2009, the most recent year for which figures are available, according to research firm Gartner.
South Korea’s unlisted LG Siltron is another likely beneficiary, especially with the yen close to record highs against the dollar .
“They’re already on a roll in the last year or two,” said analyst Joel Scheiman of research firm MF Global in Tokyo. “The typical factors cited are a ‘Buy Korean’ trend within the Korean market, plus of course a tailwind from the currency ... even Shin-Etsu has admitted in meetings that LG Siltron has been increasing its market share.”
Shin-Etsu says it is still considering how far it will be able to cover the loss of production at its other plants. While wafers for memory chips can easily be produced at any plant in the world, almost all other types of wafer are more difficult to produce, according to iSuppli.
“TSMC, because of their scale, would probably be among the first to be supplied wafers in a tight market anyway,” said Scheiman of MF Global
“The logic would be that some of the smaller customers would have to worry if things really do get very tight,” he said. (Reporting by Isabel Reynolds; Editing by Michael Watson)