Leading analog chipmaker Texas Instruments Inc. (TXN, or “TI”) reported that two of its fabs in Japan have been impacted by the Tsunami. Share prices had held relatively stable during the day, but dropped off 2.05% after hours when the company announced the damage.
The worst affected was TI’s facility in Miho, Japan, which is located roughly 40 miles to the north west of Tokyo. Although the structure of the Miho building remains in tact, TI estimates that the fab’s basic infrastructure systems for delivering chemicals, gases, water and air will need a repair time of around 3 weeks.
Manufacturing equipment could also have been impacted, but the non-availability of a continuous power supply makes it hard to gauge the extent of damage.
Of the two remaining fabs, Aizu-wakamatsu (150 miles north of Tokyo) suffered minor damage and TI currently expects it to be up and running at normal capacity by mid-April. Aizu was acquired from Spansion and continues to support it. The Hiji fab (500 miles south of Tokyo), has however remained unscathed, continuing to run at normal capacity.
TI stated that the Miho fab accounted for around 10% of its total revenue in 2010, roughly a third of which was DLP and the balance analog. While TI has found alternative manufacturing capacity for 60% of the production at Miho and 40% of work in progress at the fab is estimated to be recoverable, TI fears revenue losses in both the first and second quarters of 2011.
Additionally, the company also expects to take charges for the losses and increased expenditure to bring the fab lines back to manufacturing condition. The revenue impact may not be that significant, given the company’s arrangements for alternative manufacturing and the recovery of some inventory at the site.
We are more concerned about the charges TI intends to take and wonder how that will impact the company’s performance in 2011.
Earlier, Intel Corp (INTC), the leading producer of microprocessors needed to take a significant charge related to the recall of its Cooger chipset that supports Sandy Bridge. As a result, estimates for the upcoming quarter went awry. For TI too, we expect significant charges, but we are not making changes to our estimate until the company provides more complete information.
TI narrowed its guidance just last week (TI Outlook Narrows), and management has now stated that further details about the impact of the Tsunami would not be available until the first quarter earnings announcement.
TI shares are rated Hold in the short term (Zacks #3 Rank), similar to other IDMs, such as Intel Corp, STMicroelectrionics (STM) and Intersil Corp (ISIL).
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